If you have assets in the UK and you are either non-resident or non-domiciled then you are an international client. It is important to seek specialist advice to ensure that you receive advice that is appropriate to your situation. The capital taxes that could affect your UK assets are Inheritance Tax, Capital Gains Tax and Stamp Duty Land Tax. All of those taxes are affected by whether or not you are resident, habitually resident, tax resident or domiciled. You must get the advice of a specialist to understand what your potential liability is for any of those taxes.
Most international clients who have UK assets will usually have UK property. Below are the capital and other taxes you need to be aware of as an international property investor.
UK property is subject to inheritance tax (IHT) in the UK. Inheritance tax is charged at a flat rate of 40% above the nil rate band, which is currently £325,000 per individual. The UK has a favourable inheritance tax regime for individuals who are non-UK domiciled. With careful planning, which may involve the use of offshore trusts, most non-UK domiciled individuals can protect their non-UK assets from UK inheritance tax, even after they have become deemed domiciled in the UK. It is important to seek advice as early as possible.
Capital Gains Tax
From 6 April 2015, non-resident individuals are liable to capital gains tax (CGT) on the disposal of UK residential property, although only the portion of the gain arising after 6 April 2015 is taxable. The top rate of CGT is 28%. The new regime taxes both indirect and direct disposal of commercial as well as residential real estate by non-UK residents. The sale of interests in “property rich” vehicles are indirect disposals.
Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is payable by the purchaser whether UK-resident or not. at rates of between 0%-12% for residential property. Where a second residential property is purchased, the standard rates are increased by 3%. The nil rate (0%) band has been increased to £500,000 for residential properties purchases from 8 July 2020 until 31 March 2021 The tax is payable by UK residents and non-residents. A 15% rate of SDLT now applies to acquisitions of single dwellings valued at more than £500,000 by companies and certain other non-natural persons (NNPs).
Profits deriving from UK rental receipts are taxable in the UK in all cases. For non-resident individuals, the tax rate is between 20% and 45% depending on the level of profits and any other UK source income received by the taxpayer during the relevant tax year.
Annual Tax on Enveloped Dwellings (ATED)
ATED was introduced from 6 April 2013. It is an annual tax charge that applies to companies and other non-natural persons owning residential property valued in excess of £500,000.
ATED-related Capital Gains Tax
This applies to all disposals of residential property within the charge to ATED, at a flat rate of 28%.
Non-Resident Capital Gains Tax (NRCGT)
With effect from 6 April 2015, all non-residents (including companies and individuals) are liable to CGT on the disposal of UK residential property. Properties outside the scope of ATED-related CGT are within the charge to NRCGT, but only on the portion of the gain arising after 6 April 2015. Disposals of shares in companies owning UK residential property are were outside the charge to CGT when made by a non-resident. This has changed. From April 2019, a disposal by a non-resident of an interest in an entity, such as a company or certain trusts that are ‘property rich’, is now within the scope of either CGT or corporation tax (for companies) if the non-resident holds an interest of 25% or more in the entity, or has done so at some point in the two years ending with the date of the disposal (including the period before April 2019).
Emigrating to the UK
If you are coming into the UK for the first time, perhaps emigrating from another country, you need to get advice even before you enter as you may need to do some structuring before you become UK resident.
But, even if you have been here for a while, you should still seek advice especially before you have been here for 15 years when you will be deemed-domiciled.
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