Property tax in England is regulated by special legislation. To define your tax responsibilities, this legislation takes into consideration important factors of property system as well as cost and number of properties you may have.
This article will attempt to briefly provide with information those interested in proceeding to a relevant investment of buying property.
Stamp Duty Land Tax (SDLT)
This tax is payable during the purchase of the property and the rate depends on the price and the type of the property.
When a physical entity already has property anywhere in the world and buys another one, the relevant tax is increased by 3%. However, there are occasions when this extra tax can be refunded.
If you buy a house for £275,000 then the SDLT you will have to pay is calculated as follows:
0% for the first £125,000 = £0
2% for the next £125,000 = £2,500
5% for the remaining £25,000 = £1,250
Total SDLT = £3,750
Rates when it is for your first home
You can ask for a tax deduction and not be taxed for the first £300,000 and 5% for an amount ranging from £300,001 to £500,000.
You are entitled to this if:
- This is your first property (in any country) and
- The purchase takes place on or after 22 November 2017
* If the price exceeds GBP 500,000, this right does not apply; instead, the rules for the purchase of a second or more properties will apply.
It is also important to note that there is additional 15% tax for purchases by non physical entities, such as companies. This regulation however, applies for purchases falling into the category of property for Annual Tax on Enveloped Dwellings (ATED) (see below). In other words, it applies when private use property is purchased by companies (starting at and over a particular price).
To calculate the relevant tax for your case, click here.
Inheritance Tax (IHT)
For non UK residents, this tax is paid either after the death of the owner or during the process of donation of the property. If an offshore company holds property, since 2017 this is considered as property of a UK company in terms of taxation and therefore, if the shareholder passes away, it is subject to this category.
Inheritance Tax is 40% above the tax free limit (£325,000). In order to reduce this tax, some chose to pass their property to their children. This route however may have hidden risks and other taxes and it is therefore necessary to consult a specialist in the property field.
Non-Resident Capital Gain Tax (NRCGT)
If you are not a UK resident, when selling property and gaining profit, you have to pay the relevant tax within 30 days (normally 28% or in some cases 18%). Capital Gain is the difference of the purchase amount minus the selling amount (including any accepted costs, such as sale or legal costs).
This applies to physical entities while it varies for legal entities, but this will not be discussed in this article.
Annual Tax on Enveloped Dwellings (ATED)
ATED is the annual tax on property of value over £500,000 which belong to non-physical entities, but for example, to companies. ATED ranges from £3,650 to £232,350 per year depending on the value of the property, and the cost increases every year depending on inflation.
The relevant ATED form must be submitted every year which, in some cases, can also be accompanied by an application for tax reduction.
Taxes are relevantly simple when you buy property to rent. Even if the value of the property is below £125,000, you need to submit your Self Assessment tax return every year, including all your income and the tax rate depends on the total income. The rates range from 0 to 45%.
If there is no will, succession is based on the relevant UK legislation (UK intestacy law) and on many occasions the outcome does not agree with the wishes of the successors and therefore, it is of great importance to consult specialist in the estate field and clarify such issues as soon as possible.
Translated / Edited: Apostolia Nestoratou
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This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.