Buying Residential Property in the UK Advice for Foreign Nationals

Freehold Property

A freehold property is where the owner has complete and absolute ownership of the land, and all buildings that stand on the land. There is no limit of time to hold the property like in the case of leasehold property. A freehold property lies with the titleholder unless they transfer it of their own accord. Freehold property insurance will be required. The owner of a freehold property is therefore in a position to do what they wish to with the property, in accordance with local planning regulations. Most house properties in the UK is owned on a freehold basis

Leasehold Property

In the eyes of the law, a lease refers to a specific contract that exists between the owner of a property and a leaseholder that provides the latter with conditional ownership for a fixed period of time. Leases are usually worded in legal jargon, which can be hard to understand without taking advice. Leases lay out in certain terms the contractual obligations of both parties. This will include what the leaseholder has to do, and what the landlord has to do. The lease will set out what the leaseholder’s obligations are, as well as any restrictions and conditions regarding the property. There are short and long leases based on the time period involved in leases.

Long leases

These are typically for 25 years, where the lessee pays a capital sum for the use of the property for the agreed period. There are long leases that run up to 99 or sometimes 999 years.

Short leases

  • Rental agreements (usually from 1 to 5 years) where the tenant pays the rent on a weekly, monthly or quarterly basis.
  • Payment for a longer lease, typically a 25 year lease, which involves the payment of a premium and much lower regular payments of rent.

Buying properties in UK for residential use; By UK residents

The only tax or the duty that a UK resident is liable is the stamp duty, which is a percentage based on the purchase price. This higher threshold applies to purchases made on or after 25 March 2010 and before 25 March 2012.

Purchase price of residential property Rate of SDLT (percentage of the total purchase price) Rate of SDLT – first-time buyers (percentage of the total purchase price)
£0 – £125,000 0% 0%
£125,001 – £250,000 1% 0%
£250,001 – £500,000 3% 3%
£500,001 or more 4% 4%

There are no capital gains tax involved in the sale of a person’s principal or main residence. If an owner has more than one property he / she must clearly indicate as to what is his / her ‘principal private residence. For inheritance tax purposes, if the owner of the property is a UK resident but not domiciled in UK then on his death the property together with any other assets situated in the UK would be aggregated and liable to inheritance tax.

For more information on inheritance tax thresholds, visit HM Revenue & Customs

 

Buying properties in UK for residential use; By non – UK residents

Residence – and non-residence – can be determined by your intent when arriving or settling in or leaving the UK and the amount of time present in or outside the country, and whether you acquire or maintain a property here to live in. If you are in the UK for 183 days or more in a tax year then you are resident for UK tax purposes.

However, it is possible that you may be resident in the UK for a shorter time in a tax year and yet, because of the consecutive number of years in which you have been present, you may be deemed to have residence. For instance, spending an average of 91 days per tax year over four years means you will be considered resident from the following tax year. Similar but different complex issues can arise when you leave the UK to reside in another country.

For property dealings if the individual remains a non UK resident at the time of sale of his UK property, then he will not be liable to UK capital gains tax on the gain arising out of the sale of the asset. The stamp duty applicable for property acquisitions in the UK is as follows.

 

Purchase price of residential property Rate of SDLT (percentage of the total purchase price) Rate of SDLT – first-time buyers (percentage of the total purchase price)
£0 – £125,000 0% 0%
£125,001 – £250,000 1% 0%
£250,001 – £500,000 3% 3%
£500,001 or more 4% 4%

 

Conclusion

Any landlord whether resident or not have to pay taxes based on the income of their property or based on the capital gained by through the sale of their assets. However, you need to check with your accountant for detail tax implication about your specific case. This is extremely important if you are a small buusiness owner as tax evasion could result in heavy penalties.

Check for more tax implications by clicking the following link

http://www.hmrc.gov.uk/index.htm

For advice on tax issues pertaining to your properties or rental income, contact your nearest accountant. Hammersmith Accountants can help you to find your local accountant. Hammersmith Accountants have registered accountants in Wimbledon, Hammersmith, Roehampton, West Kensington, Earls Court and Fulham