The Tax Updates All Foreign Investors Should Know
In recent years there have been a number taxation changes relating to the purchase and sale of property within the UK. Luckily, many of these changes affect residential property more so than commercial property investment, however it’s still essential to know the latest information about tax and how it affects you. Whether you’re a non-residential individual or company that has already purchased a commercial property investment, or are someone who is looking to invest in the UK, here’s what you should know now.
Capital Gains Tax
One of the biggest changes to the current tax system has been the Government introducing capital gains tax for foreign investors on all profits coming from the sale of commercial property. Up until recently this has not been the case, however this rule was introduced in the 2017 Budget and will affect all commercial property being sold after April 2019, when the tax rule comes into effect. Both individuals and companies will need to pay the tax on the gains (at either corporation or capital gains tax rate which are around 20%), however exemptions will apply for foreign pension funds.
Stamp Duty Land Tax (or SDLT as it’s widely known) is the tax you pay on the purchase price of the property when you buy. These rates apply irrespective of whether an individual or company is purchasing.
The rates differ for residential and commercial property, but both increase incrementally as per different portions of the sale price. Instead of paying a flat rate on the full purchase price, different amounts are payable according to what portion of the purchase falls into that bracket. For example, on commercial properties SDLT it will start to be charged after the first £150,000. The portion from £150,000 - £250,000 is charged at 2% and anything above £250,000 is capped at 5%. On residential properties, the SDLT begins at £125,000 and increases to a huge 12% on any remaining value over £1.5M.
Income Tax on Rent
Regardless of whether you’re a resident or not, any income generated from letting a property in the UK is subject to income tax. Foreign companies pay a flat rate of 20% on rental profits, whereas an individual is subject to a marginal rate of 20-45% (though those are often able to claim a percentage of this back) and foreign trustees will pay a rate of 45% on net income.
At Prideview we are registered to account for tax via the Non-Resident Landlords Scheme (NRL). This means we take care of the tax on your behalf, paying a flat rate of 20% of the rent (minus any allowable expenses) to the HMRC on a quarterly basis, and will also submit an annual return on your behalf.
In addition to income tax your property may be subject to value-added tax (VAT), depending on the type of property you purchase. However by registering for this, this cost can be effectively mitigated. For a comprehensive explanation of VAT on commercial property investments, read our blog here.
Irrespective of where the owner is located, inheritance tax (or IHT) is charged on all assets owned in the UK, however this usually only applies to individuals (not companies). The rate of IHT is 40% on death, with transfers and trusts taxed at 20%. Although this seems like an exorbitant amount, there are exemptions and some loopholes that can provide relief for commercial property investors. For example, if it is owned by a non-UK company the same rules do not apply, however the rates will still be applicable for residential regardless of whether it’s company or individual owned.
At Prideview Properties we have an experienced in-house accounting team as well as a number of accounting firms that help us look after the affairs of overseas investors. And, with over 30 years experience in commercial property investment in the UK, our established team will be happy to handle those affairs within the UK. If you have any questions, or simply want some advice on your UK commercial property investment, get in touch with one of our friendly team members today on +44 (0)208 954 0878 or via email here.