If you’re thinking about buying a home in the UK, primarily as part of a move or as part of your long-term plans, it’s important to understand how the UK tax system applies to you. And whilst there are no legal restrictions on the purchase of UK residential property, regardless of whether this is done in advance of relocation to the UK or you’re here, there are a few practical and taxation issues that you should consider.
Property ownership here can be a valuable part of your wealth strategy, but for international individuals, it also brings complexity. Recent tax reforms have added to that complexity. You may now face increased Stamp Duty charges, higher Capital Gains Tax on property sales, and additional scrutiny around Inheritance Tax. These changes are leaving many people feeling uncertain about how best to structure their investments and safeguard their estates.
To help, we’ve answered some of the most common questions we receive from international clients who are relocating to the UK and purchasing property here. While everyone’s circumstances will be different, and individual advice is essential, this guide outlines some of the key issues to consider. Where you are looking to purchase UK property as a pied-a-terre or for investment, then the considerations are different and have been separately covered in our other publication.
What’s the difference between freehold and leasehold?
As with many jurisdictions, the UK has longstanding property holding rules. The key difference between freehold and leasehold relates to the land on which the property has been built. Freehold means that you own both the land and the property, though with a leasehold you will own the property for a set period, but not the land, which is owned by the freeholder. At the end of the lease the property reverts to the freeholder. As such, a freehold property will generally have greater value than a leasehold property. Leaseholds are most commonly seen with flats, though a leaseholder, typically with others in the same building with flats, does have a statutory right to purchase the freehold.
Will I need borrowing, and can I get it?
If you have not been UK resident, you may not have built up a credit history in the UK. Whilst this is not an issue, it will inevitably create some additional complexity and work for any potential lender. Additionally, this could decrease the loan to value ratio that could be sought. With regulated lending in the UK, each lender is required to apply certain affordability criteria to any proposal. Where borrowing is required, it is always recommended to engage early in the process as each lender will have a different appetite to lending, the properties they lend on, whether this is freehold or leasehold property and the terms of that lending.
What property acquisition taxes are due?
The UK property acquisition tax, Stamp Duty Land Tax (SDLT), has undergone a transformation in the last ten years. It is charged on a slabbed basis up to an incremental rate of 12% when the purchase price is more than £1.5million. If the purchase of the property means that you will own more than one property, then HM Revenue & Customs (HMRC) will apply a 5% surcharge to the whole of the property purchase price. In addition, a 2% surcharge will be added if you are not resident in the UK when the property is purchased. For these purposes, you will need to have been present in the UK for at least 183 days during the year before the purchase date to avoid this additional 2% rate. If you become resident under this test after you have purchased the property, then you can apply for a repayment of the 2%.
SDLT can be a significant initial outlay, so this should be calculated in advance as a lender will not include this in their calculation of the property’s value.
Can I mitigate property acquisition taxes?
Yes, in certain circumstances. If you are retaining a property outside the UK, then the additional 5% surcharge could well be due. This could be refunded where the other property was the family home and is sold following a relocation to the UK. However, if the intention is to retain and potentially let out the property outside the UK, then consideration should be given as to how this is owned. It is therefore important to engage on this in advance of a purchase of UK property as there are steps that can be taken to avoid the imposition of this surcharge.
Can I purchase this through a company or a trust?
Purchasing a property through either a UK resident or non-UK resident vehicle will create additional tax complications and liabilities so will not always be suitable. The tax consequences will depend on a wide range of factors, including whether you are resident in the UK, whether the UK property is purchased by the entity or a loan made to the beneficiary to acquire the property (and the terms of that loan) and whether there is a mixture of owners. Where there is a purchase of property in circumstances where a company or trust involved, it is imperative to take advice as the mechanism will have a significant bearing on the taxation consequences.
If I sell my property at a profit, do I pay tax on this?
The UK has generous rules on main residence relief, which will exempt a gain realised on a property that has been owned and occupied as a main residence throughout the whole ownership period. There are some additional rules that will deem certain periods of absence to be one of occupation, which can reduce the tax due if there are periods of non-occupation. If the property is owned by a company, then generally tax will be due on the gain, though not always for a trust. Again, care will need to be exercised as to the ownership structure. Where there is tax due on a sale, there is a requirement to file a separate Tax Return and settle any taxes due within 60 days of the sale.
What happens if I leave the UK and let out the property?
Where rental income is received, the UK will retain primary taxing rights over the net profit. Tax Returns will need to be prepared and filed with HMRC. In advance of leaving the UK, it is important to engage with any lender to discuss changes to agreed borrowing arrangements. Generally, interest incurred on borrowings secured on let property is deductible, though tax relief can be restricted for higher rate taxpayers. As noted above, if the property is sold when the owner is not resident, then there would be a requirement to file a Tax Return and settle tax within 60 days.
What about UK estate taxes? How do these work?
The general starting point is that UK residential property is within the scope to UK Inheritance Tax (IHT) regardless of where an individual owner lives or their domicile position. Where borrowings are secured against UK property to enable this to be purchased, then UK IHT will be levied on the equity element. However, if later borrowing is added, a deduction for UK IHT may not be available, so separate advice should be sought. There are circumstances where the purchase arrangements could create an IHT exposure in the UK, such as where the property is purchased through a family trust or using a loan from the family trust.
Where property is owned in the UK by an individual, it is generally recommended that there is a separate UK Will dealing with the devolution of that asset on passing. Where there are assets owned in various jurisdictions, it is important that this is considered as part of an individual’s wider Estate plan.
Expert tax guidance for peace of mind
Whether you’re relocating, investing, or managing your estate, we’ll help you make decisions that protect your wealth and give you peace of mind. Our Private Client Tax team brings together deep UK expertise and international insight, supporting you with:
- Pre-arrival and pre-departure planning
- Property structuring and investment advice
- UK personal tax, trust, and corporate advisory
- Offshore tax advice through our global network
- Estate planning and inheritance tax support
We take the time to understand your goals, and offer clear, practical advice tailored to your circumstances, so you can focus on what matters most.
Talk to our team
If you’re planning a move to the UK or looking to invest here, get in touch to arrange a confidential conversation with one of our experts.
