Buy UK Property Tax Effectively and Increase your Investment Return
Did you know that buying your next investment properties in the UK with the right Vehicle is likely to save you much more money than any discount you negotiate with the Developer or any form of rental Guarantee? Whilst I am talking about UK buy to let investments this could apply to any property purchase or Investment.
At Gray Stuart we are surrounded with the very best Lawyers, Accountants, Estate Planners and Tax Advisors in the world because we know how you buy a property in each country is different and you need to know which is the most tax efficient for you. As we also invest in some of the projects we promote I want to make sure I do the right thing for us as well as our clients.
One example of this is in Philippines you would in nearly every case buy a residential property in your personal name but in the UK that might not be the best option. In essence the bigger your estate and net worth the more important it is to buy your assets tax effectively.
Find out more on this video.
UK Buy to Let Investment Taxes
So the first thing is you need to understand how they are taxed and the different ways they are taxed via individual tax and corporation tax. There are 3 main taxes associated with UK buy to let Properties which are buying taxes, Income Taxes and Selling Taxes listed below along with annual property tax which is only applicable to corporations.
STAMP DUTY – BUYING TAX
|STAMP DUTY||FIRST GLOBAL PROPERTY||ADDITIONAL PROPERTY OR BY A COMPANY|
|£0 – £125,000||0||3%|
|£125,000 – £250,000||2%||5%|
|£250,000 – £925,000||5%||8%|
|£925,000 – £1,500,000||10%||13%|
Important notes here are the tax is scaled up so if this was your first property and the purchase price was 250,000 you would only pay 2% of 125,000. There are quite a few companies offering a Stamp Duty Calculator online to work the exact costs out.
Important Update – Recently the UK Chancellor made a temporary change to Stamp Duty unitl 31 March 2021. The change being that any property up to 500,000 would be exempt for first purchase and for companies and buy to let buyer it would now be 3% up to 500,000 with the bands above kicking in at 500,000. However as not to date the blog over time we have kept the old rates for reference after April 1st 2021.
RENTAL INCOME – INCOME TAX
In essence the income you receive is treated as income and as a private individual you will have your personal 12,000 allowance before paying tax and then the first 37,000 is treated at 20% and thereafter 40% and total income over 150,000 at 45%. You are allowed certain deductions for interest but not at the higher rate and business expenses such as letting management charges.
If your buying though a UK Company, you have to pay corporation tax at 19% both. Here you will have many more allowable deductions.
CAPITAL GAINS TAX – SELLING TAXES
Individuals will pay 18% to 28% and have a 12,000 allowable deduction and company will pay at 19% with no allowable deductions.
ATED (Annual Tax on Enveloped Dwellings)
This tax is only payable by companies on assets of 500,000 or more which is set at 3650.00 on Assets between 500,000 and 1,000.000 and 7400,00 on assets between 1 Million and 2 Million.
This is quite a clever tax which for corporations is hard to escape and even in you buy below 500,000 over time the asset could grow to meet that threshold.
The Benefits of International Investors using a UK company to buy UK Assets
The most important thing is that you never have to pay UK income Tax as you should always be able to take money out as an overseas resident and therefore you will be liable to pay tax in the jurisdiction where you are tax registered which in Hong Kong or Singapore is much more favorable than the UK.
Whatever your income you pay 19% Corporation Tax and all your business expenses are allowable no matter what income you derive from your investments.
Another huge benefit is when you come to sell your asset or assets you can choose to sell the company and not the individual assets this saves the buyer a large amount of money in Stamp Duty. This will likely mean you paying less tax.
All monies put into the company to buy assets can be withdrawn tax free if the right structures are put in place.
The Drawback of using a UK company to buy UK assets
There are very few but they include the cost of running a UK company and dealing with tax returns, potential liability to ATED if your buying assets over 500,000 and the increase of Stamp Duty if it’s the first property.
There may be some exceptional cases where it pays to go under UK tax system to pay less tax but these benefits would really only apply to UK Nationals and Tax Residents.
What Solution Do Gray Stuart Recommend?
Whilst every client is different and the benefits will be very different in USA to the Cayman Islands as far as the UK is concerned we suggest a single UK Company for each asset in the UK you pan to own. If you were planning to own more than 50 Properties, then we would suggest a UK holding company to own the individual companies but at this point this gets into complicated tax matters and I am not a qualified Tax Advisor but can recommend you to the very best one depending on your nationality.
At Gray Stuart as part of our service we will at no cost to our clients set up the UK company, UK Bank accounts and arrange UK accounts and Tax returns for the first 5 years or whilst you remain a client of ours. We will recoup this cost from either the commission we are receiving from the property transaction or from our fee if we are being retained as the buyer’s agent.
Obviously you have the choice to use someone else and if that is the case the strategy mentioned in this blog is still very good advice.
I hope you have found this blog informative and helpful and just remember the way you buy an asset is normally more important than the price you pay for it.
Should you wish to discuss any points raised in this article please feel free to reach out to me on any one of my Gray Stuart UK Team and we will only be too pleased to help.