UK land and property ownership has become an essential area in which to ensure you fully understand your tax position.
UK land and property ownership has become an essential area.
The taxation of UK land and property has seen significant changes in recent years. While the picture as to winners and losers is not straightforward, typically the tax cost and complexity associated with buying, owning and selling land and property in the UK has increased. This is especially so for home owners who are either not domiciled or not resident in the UK.
The UK taxes to consider are presently:
Stamp duty land tax (SDLT) is paid by the buyer on the acquisition of land and buildings situated in England or Northern Ireland at rates and bands prevailing at acquisition.
In Scotland, SDLT has been replaced by the Land and Buildings Transaction Tax (LBTT). This impacts all purchasers of land and buildings in Scotland. LBTT has different rates and bands to SDLT.
In Wales, SDLT has been replaced by the Land Transaction Tax (LTT). This impacts all purchasers of land and buildings in Wales. LTT has different rates and bands to SDLT.
There is also a 3% SDLT/LBTT/LTT surcharge for purchases of ‘additional’ residential properties such as buy-to-let properties and second homes. The surcharge will apply whether the purchaser is an individual or not, and regardless of where the purchaser is tax resident. However, the surcharge will not apply where the property is the replacement of the purchaser’s main home or the purchaser’s sole residential property worldwide. The rules on the surcharge are complicated and differ between the three taxes.
For transactions with an effective date on or after 1 March 2019, the time limit that purchasers have to file a SDLT return and pay the tax due will be reduced from 30 days to 14 days. For LBTT and LTT the filing and payment window is 30 days.
Further information is included on our Stamp taxes page.
UK resident taxpayers have long had to consider whether they have a CGT liability (or a corporation tax liability on capital gains) when they realise a profit on the disposal of residential property in the UK. From 6 April 2016 individuals and trustees disposing of UK residential property are charged at the 28 % higher rate of capital gains tax. Currently gains are reported and tax paid (by 31 January following the end of the tax year of disposal) as part of the normal self-assessment tax compliance cycle. However, from 6 April 2020 onwards a new ‘30 day window’ will be introduced for UK residents disposing of UK residential property. This will significantly reduce the time for payments of tax as well as creating further compliance requirements.
Where the owner is an individual (and in certain circumstances trustees and personal representatives), there is the potential for relief from CGT on the sale of their only or main residence. Where an individual has lived in the property from the date of purchase to the date of sale, any gain arising on the sale is normally covered by Principal Private Residence relief (PPR) and fully exempt from CGT.
Non-UK residents have historically not generally been liable for CGT on sales of UK residential property under UK tax rules, in contrast with the tax systems of many other countries. However from 6 April 2013 rules have been gradually introduced which extend the scope of CGT to include non UK resident taxpayers. Initially only companies and certain other vehicles were subject to this tax and only with respect to gains on residential properties typically used by someone connected with them as their home.
From 6 April 2015 the scope of CGT was extended to tax capital gains realised by further classes of non-UK residents, including individuals and trustees, disposing of UK residential property, regardless of their value or usage. This extension applies to capital gains accruing post 6 April 2015 on disposals of residential property located in the UK, with a requirement to make a return to HMRC within 30 days of conveyance of a property. From 6 April 2019 the tax due will also need to be paid within 30 days. Most types of communal property are excluded from the charge. The rules predating this extension largely continue to apply in parallel, which creates considerable complexity. There are however rules in place which seek to ensure that tax is not paid more than once on a gain.
PPR has also been reformed to accommodate this extended charge on non-UK residents. Taxpayers with more than one residence are still able to elect to choose which residence is their main residence for PPR, provided that they meet the necessary conditions. However, from 6 April 2015 it is more unusual for UK resident taxpayers to receive relief on disposals of non UK homes and for non UK resident taxpayers to receive relief on the disposal of homes in the UK. This is because the relief will require the individual to meet a ‘day count test’ in relation to the residence for each tax year for which it is claimed. Broadly, the ‘day count test’ will be met if the individual or their spouse/civil partner spend at least 90 midnights in the property in the tax year.
There is a further increase in the scope of the rules for non-UK residents from April 2019 extending the UK tax charge for non-UK residents to include profits from all UK land and property. Currently non-UK residents are only taxed on gains arising from UK residential property. In addition, from April 2019, there is a requirement to make a return to HMRC and pay the tax due within 30 days of conveyance. These new rules rewrite much of the existing legislation, include April 2019 rebasing provisions and a trading exemption.
If these rules could affect you, please call your usual KPMG Private Client contact.
ATED was introduced with effect from 1 April 2013. The rules are complex but broadly it is an annual tax charge which applies while companies and certain other vehicles hold UK residential property, typically for someone connected with them to use as their home (‘enveloping’). The charge applies to properties with a value of £500,000 or more. If a residential property was acquired prior to 1 April 2017, the value of that property as at 1 April 2017 must be considered in determining whether ATED applies, and if so, in which band the property will sit. Reliefs apply where the property is used by the company (or vehicle) for certain specified business purposes.
Where the ATED rules apply, the owner needs to file an ATED return with HM Revenue & Customs (HMRC) and either pay the tax or claim a relief (for example the exemption for properties which are rented out to third parties) within:
Value of UK residential property
Annual charge for the period ended 31 March 2020
|Over £500,000 up to £1 million||
|Over £1 million to £2 million||
|Over £2 million to £5 million||
|Over £5 million to £10 million||
|Over £10 million to £20 million||
Over £20 million
Inheritance tax can apply at up to 40% on death or during lifetime at 20% on certain transactions such as gifting of property to trusts. Where an individual owns UK residential property these charges may apply regardless of where the individual is resident or domiciled. There may be debt which should be deducted from the value subject to IHT, depending on the circumstances.
In the past non-UK resident individuals and non-doms (and their trusts) have been able to shield the value of UK residential property from IHT by holding property through a non-UK company. This has been effective for IHT charges arising on death and during the lifetime of an individual as well as ‘ten year anniversary’ and ‘exit’ charges on the trust.
From 6 April 2017 the UK IHT net was extended to all residential properties in the UK that are owned by non-doms, whether the non-doms and any companies that own the properties are resident in the UK or not. This also includes those who lend money or provide security to purchase UK residential property. Such loans will be subject to IHT in the estate of the lender, regardless of lender’s residence and domicile position. This will apply to all loans, with no distinction for loans between connected parties.
For further information on the rules that apply from 6 April 2017 which were included in Finance (No2) Act 2017 see - Inheritance tax on UK residential property.
Income tax (and corporation tax on income) is typically payable on rental profits or development profits but may also apply in other circumstances.
From 6 April 2017 new restrictions on the deductibility of finance costs for let residential property apply for some taxpayers.
Council tax is collected from occupiers by local authorities.
What action should you now consider taking?
Each of the above taxes brings its own complexities and compliance burden which need to be understood.
Individuals who hold higher value properties or second homes, directly or through trusts and companies, typically need to take into account the overall effect of these taxes. In practice there will be a range of possible outcomes and it will be necessary to consider both the objectives and circumstances of the individual and all of the relevant facts.
Understanding the aims and requirements of the property owner are key to providing the most suitable advice. For example, is the property intended to be used as a long-term family residence or is it more of a shorter term investment?
If you already own land or property or you wish to make such an acquisition, these rules could affect you. Please call your usual KPMG Private Client contact.