Tax on Residential Property

The taxation of UK residential property has undergone significant changes recently. It used to be possible to hold UK property through trust / company structures and shelter the value from inheritance tax but this is no longer the case. There are more changes anticipated which will extend tax charges to commercial property in the UK whether held directly or through a structure.

If you hold UK property, you will need property tax specialists like us to guide you through the increasingly complex rules to find a structure that suits your needs whether you live in the UK or are based overseas.

Buying a home in the UK

Buying a property in the UK, whether as your prime residence or a holiday home, is relatively simple although there can be some nasty surprises on Stamp Duty Land Tax (“SDLT”) where a 3% surcharge can apply where you already hold another property whether in the UK or overseas. A property purchase through a company will also lead to SDLT surcharges.

We can clarify your SDLT position before you buy your property and can also advise on whether there are any steps you should take to protect your inheritance tax position.

Rental Properties

We also advise UK residents on their investments in UK residential property rental businesses.

You will need to file Tax Returns to declare your rental income. There is a new regime for allowable expenses to be set off against rental income which will increasingly restrict deductions for finance costs, and which may result in a personal property business becoming unprofitable without additional planning.

You will also have to file an Annual Tax on Enveloped Dwellings (“ATED”) Return where the property is held through a company. You need to do this even where you can claim a full exemption from the charge because you are renting the property out. If you have void periods you will need advice on whether you need to pay ATED for that period or not.

The ATED rates are currently:-

Chargeable amounts for 1 April 2023 to 31 March 2024

Selling a UK residential property

Most people assume that if they are selling their family home that this is free from capital gains tax, and this is generally true. However, you will need advice if:-

• You have lived away from the property
• It has large grounds or outbuildings
• You have owned two properties and used both as residences
• You have rented the property out
• You did not move into the property in the first year of ownership
• You have only owned the property for a short period of time

You now have only 30 days from completion of the sale to tell HMRC about any reportable gain or loss on a property sale, so you need to act quickly.

Offshore Structures / Non Doms

Historically, non-doms were advised to hold UK property through a trust/company structure to prevent the property being subject to inheritance tax. Such structures are no longer effective inheritance tax structures, and indeed may be subject to double or even triple tax charges on the same value depending on how any lending has been structured.

We can advise on partial re-structuring to mitigate the inheritance tax charges or indeed a complete winding up of the trust if appropriate.

IHT on UK residential property

It is difficult to mitigate inheritance tax on the family home but there is more scope for tax planning in the case of second properties, and property businesses. There is relief for estates under £2.35 million in value where the bulk of the value is held in the family home where the nil-rate band is extended. Planning should not be considered in isolation, but as part of a wider review of your wills and estate planning.

How We’ve helped:

• Helped to clarify the position regarding SDLT for purchasers and helped them to qualify for little known reliefs
• Helped to plan property disposals to ensure maximum tax efficiency
• Helping Buy To Let landlords consider the best structure for their businesses in the new tax regime and in particular whether to incorporate or not.
• We helped a couple reduce their SDLT costs on a property purchase by over £40,000 by making appropriate relief claims.
• Advised a family on the incorporation of a buy-to-let business.