Also, the London residential market
is very much an international market.
The international community is said
to account for half of all property
purchases in the most exclusive
boroughs of London – Mayfair,
Kensington and Chelsea, Knightsbridge
and Belgravia. London residential
property is seen by many as an
excellent investment: a safe place
to hold an asset, combined with the
extraordinarily good returns on capital
investment that have been seen in
recent years and a tax regime which
has traditionally been sympathetic
to foreign investors. Whilst recent
and forthcoming changes (which we
explore below) have eroded these tax
advantages, and will do so further from
April 2017, there are still a number of
different options for tax efficient property ownership available to a foreign
investor.
Careful planning
The key, however, for any would-be
investor, is careful planning before
acquisition. It is essential to r eview an
acquisition structure for its tax efficiency at an early stage, and certainly
before exchange of contracts for the
property purchase. Without doing so,
the purchaser could face costly tax
consequences, eroding their anticipated returns and, potentially, the
value of their children's inheritance.
Prior to 2013, the usual advice to the
overseas investor was to purchase the
property through a non-UK company.
The tax rules introduced over the last
two years have made the company
purchase route much less attractive
and measures announced by the
Chancellor at the budget on 8 July
2015 to take effect in April 2017, are
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likely to make it even less so.
In this article we briefly explore the
main UK tax rules that should be
considered before investing in UK
property in the context of the three
most common ownership structures
used by foreign investors.
Residence and Domicile
Direct taxation in the UK is effected by
reference to the taxpayer's residence
and domicile. For tax years from
2013/14 onwards, residence has been
determined by applying the statutory
residence test.
Domicile is, very broadly, the place an
individual regards as their permanent
home. This is subject to deeming
rules currently only for inheritance
tax purposes, but from April 2017 it is
also to apply to income tax and capital
gains tax (CGT). In the majority of cases
involving an acquisition of UK property
by a wealthy foreign individual, he or
she is likely to be non-UK domiciled.
However, this should always be verified and in any event, some of the
measures announced in the Budget
are likely to change how many nondomiciled individuals will be treated
for tax purposes from April 2017.
Taxation of UK property
In general, there are five main categories of UK taxes that are potentially
relevant in the context of ownership of
UK residential property:
Income tax on any rental income
from the property up to a rate of
45%;
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