UK: UK Property Ownership

Last Updated: 24 August 2016
Practice Guide by Verfides

Introduction

There have been several changes in recent years to the taxation of non-residents owning UK situs property.  The most recent change came into effect on 6th April 2015 when capital gains tax was extended to non-resident owners (including trustees, partnerships and companies) of UK residential property.  Gains on UK commercial property realised by non-residents remain outside the charge.

Please note a non-UK resident who trades in UK property may be subject to UK taxation on profits.  Not all property purchases are for investment.  See further details below.

Until recently, it was standard tax planning for non-resident beneficial owners to use an offshore company to own the UK property although recent legislative changes including the introduction of the ATED (Annual Tax on Enveloped Dwellings) regime now make this method of ownership much less attractive for residential property investments.

UK Taxation on Income

Any rental income received on letting the UK property is taxable in the UK.  The tenant, or UK letting agent where there is one acting, is responsible for deducting tax from the net rent at the basic rate, (currently 20%), before paying the balancing rent over to the non-UK resident landlord.  This tax is then paid to the Collector of Taxes quarterly.

However, non-resident landlords can apply to H M Revenue & Customs for approval to receive their rental income without deduction of tax if one of the following applies:

  • Their tax affairs are up to date
  • They have never had any UK tax obligations, or
  • They expect not to be liable to UK income tax

The landlord is expected to complete a non resident landlord self-assessment tax return for each tax year (6 April – 5 April) during the period of ownership.  The return will show details of rental income and related expenditure together with details of any other UK source income and a calculation of the liability for that period.  This return should be completed by the non-resident landlord whether they are taxed under the non-resident landlord scheme or not.

An individual may be entitled to personal allowances depending on where they are resident or whether a double tax agreement applies.  The income tax rates applicable to an individual in receipt of UK rental income will range between 20% and 45% whereas a non-UK resident company will suffer tax on the net income at a fixed rate of 20%.  Any tax withheld by the tenant or letting agent will be offset against the total liability and a repayment will be made if the tax withheld exceeds the liability.

Where any non-UK resident entity is owned by a UK resident individual, whether UK domiciled or not, the net rental income generated can be attributed to that individual in certain circumstances.  Where additional taxes would be payable had the individual received the rental income direct, that additional amount will be due.

For the first period, the income tax is due on 31 January following the end of the tax year in which the income arose.  If this amounts to more than £1,000 then payments on account must be made on the same 31 January and the following 31 July accordingly.  Each payment will equate to half of the previous year’s liability as per the example below:

Example 1

A property is rented out with effect from 1 October 2015.  Say the net rental income for period 01.10.15 – 05.04.16 is £10,000.  The tax liability for the tax year 2015/16 is £10,000 @ 20% which is £2,000.  As this is more than £1,000 payments on account are due.  Payments are therefore as follows:

31 January 2017 2015/16 liability £2,000 
31 January 2017 2016/17 1st payment on account   £1,000
        Total due on 31 January 2017 £3,000
31 July 2017 2016/17 2nd payment on account £1,000

Whatever the 2016/17 liability, the company will have already paid £2,000 towards it, (being the two payments of £1,000).  The balancing payment/repayment will be made on the following 31st January, (i.e. 2018) together with any payment on account for 2017/18 and so on.

We deal with a number of non-resident landlord schemes.  The Tax department can arrange for the relevant registration under the scheme and the filing of the self assessment tax returns.

UK Letting Agents

In many cases a corporate letting agent, usually an Estate agent who organises the tenancy will also act as the rental agent.  Alternatively, we can appoint an in house UK company to act as the agent.

Agents acting for non-UK resident landlords are entitled to deduct qualifying expenses that they settle on behalf of the non-UK resident landlord before calculating the basic rate tax to be deducted.  The net payment made to the landlord will therefore be the rent collected less the expenses and income tax paid.

Expenses

Qualifying expenses are those reasonable expenses connected with maintaining and repairing a property i.e. cleaning, insurance, light and heat, rates, small-scale decoration and repairs.  Improvements or rebuilding are not generally allowed as a deduction against the rental income received, but can be deducted against any chargeable gain on a future disposal.

Where properties are let out furnished, the cost of replacing furnishings and appliances is allowable as a deduction against the rental income. 

Loans

Allowable expenses also include interest on loans to finance the property acquisition.  Where an additional loan is taken out after the property purchase, the increased loan interest may also be deductible, provided the total loan value does not exceed the value of the property when the letting first commenced.   Arrangements to provide for an interest charge against the property are appropriate where the rental income received is significant.

In these circumstances the client may wish to arrange a loan secured on the property or/and by guarantee.  The loans should be structured in a way that ensures there is no withholding tax on the interest payments.

From 6th April 2017, relief for mortgage interest payments will be restricted so that it will no longer be possible to deduct the entire costs of the interest payments from taxable income.  The restrictions will be phased in over the next few years so that by 6th April 2020, all finance costs will be given as a basic rate tax deduction (currently 20%) against the tax liability rather than as a deduction against the rental income.

Companies are not affected by these restrictions.

Capital Gains Tax

Since 6th April 2015, all gains arising on UK residential property held by non-residents (whether as an individual, company or partnership), are liable to capital gains tax, regardless of the value of the property.  However, in most cases only the portion of the gain arising after 6th April 2015 is taxable.

Certain exclusions apply for boarding schools, nursing homes, and some types of student accommodation.

The deadline for reporting the gain is 30 days from the date of conveyance, and payment of the tax will also need to be made by this date if the taxpayer does not ordinarily file UK tax returns.

The rate of capital gains tax for individuals, trustees and partners is 18% to the extent that the gain falls within the taxpayer’s basic rate band and 28% on the excess.  For corporate entities, the rate is currently 20%.

Inheritance Tax

Generally assets of a non-UK domiciled individual would not be within the charge to UK inheritance tax.  This, however, is not extended to property or other assets situated in the UK.

Therefore, if the property is directly owned by the beneficial owner the property will be subject to a UK inheritance tax charge even though the individual is neither UK resident nor domiciled.

Historically, it has been possible to take a UK property out of the scope of inheritance tax by using an offshore company to own the property.  However, as far as UK residential property is concerned, this type of planning will no longer be effective for UK inheritance tax under proposals likely to be introduced from April 2017 which will bring all UK residential property within the scope of inheritance tax, regardless of the ownership structure.  Inheritance tax is charged at 40% over an exempt amount (currently £325,000 per individual).

In relation to existing structures holding UK residential property, advice should be taken as soon as possible to assess the impact that these proposals will have on the tax efficiency of the structure and whether any restructuring should take place as a result. 

For new purchases of UK residential property, advice should be sought on alternative ways of mitigating UK inheritance tax.

It should be noted that the proposals do not affect commercial property.  Ownership of UK commercial property through a non-resident company may therefore still be an attractive proposition for mitigating UK inheritance, particularly where one of the ATED (Annual Tax on Enveloped Dwellings) reliefs is also available.  

Other

If the non UK company or individual owner buys and sells or develops and sells a number of properties then this may be considered as a trading operation.  In this instance the profits may be subject to UK taxation. 

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Useful Resources
Use supplementary pages SA105 to record UK property income on your SA100 Tax Return.
When you start renting out property, you must tell HM Revenue and Customs (HMRC) and you may have to pay tax.
Use online form service or postal form (SA700) to file a tax return for a non-resident company.
Tools
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.