The UK, and London in particular, remains a magnet for international investors. In terms of UHNWIs (those with net assets over $30 million), London has the largest population with 4,944 – the most of any city in the world according to Knight Frank’s World Wealth Report 2019.
However, the UK government introduced rules in 2019 that mean the tax cost of buying, owning and selling residential properties in the UK has now increased, particularly for non-residents.remove the remaining advantage that non-residents had over UK residents investing in UK residential property, although UK commercial property advantages do still exist. If you are a non-resident owner of UK property, either directly or through trusts and companies, these new rules will affect you and your tax position.
The UK tax system is notoriously complex and can prove a minefield to navigate – there are different rules for residential and commercial properties, and these can vary depending on where the owner is resident for tax purposes.
For many years, the UK was seen as an attractive place for foreign investors in property and it was relatively simple for non-residents to legally avoid tax. This was usually achieved by holding the property through a company registered outside the UK.
However, the advantages of doing so diminished in April 2013 with the introduction of an annual tax on enveloped dwellings (ATED), which is charged on residential properties valued at more than £500,000 that are owned by certain companies. This tax applies to both UK and non-UK residents and is charged annually based on the value of the property. It was designed to discourage corporate ownership of UK residential properties that are occupied by non-qualifying individuals.
Prior to April 2019, non-UK residents were only subject to UK capital gains tax (CGT) if they sold a UK residential property. There were two forms:
After 6 April 2019, the following changed:
The abolition of ATED-related CGT presents a tax benefit for companies disposing of UK residential property in the future, as ATED-related CGT gains were charged at the rate of 28%, while the current corporation tax rate is 19%.
| Residential Property | Commercial Property | Stocks and Shares | |
| Individual | 28% (18%) | 20% (10%) | 20% (10%) |
| Company | 19% | 19% | 19% |
| Trustee | 28% | 20% | 20% |
The figures in brackets are for basic rate individual taxpayers.
UK rental income received by a non-UK resident company is also changing. It is currently subject to income tax at the basic rate (20%). However, under new changes to be introduced in April 2020, non-resident property holding companies will fall into the corporation tax regime, which means UK rental profits will then be taxed at 19%.
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Should you require any further information, please do not hesitate to contact your usual Nedgroup Trust relationship manager who would be happy to discuss the topic with you.
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Nedbank Private Wealth does not provide specialist tax advice, but it is important to take appropriate advice in relation to your individual tax circumstances. The use of investment companies is provided for illustrative purposes only, and is not to be read as an invitation or inducement to buy a service. This content does not constitute advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.
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