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UK taxes are quite high, especially stamp duty and income tax. Foreign buyers should consult a tax advisor before purchasing real estate to simplify the registration process and minimize the tax burden.

Transaction and registration taxes

Stamp Duty Land Tax (SDLT) is payable by the buyer on property purchases in the UK. The maximum rate for individuals is 12% for properties valued at £1.5M and over. Companies are charged 15% for residential property over £500,000. Rates for non-residential properties vary from 0% to 4%.

Stamp Duty on residential property

Property value,
GBP
Rate,
%
Under 125,000 00
125,001–250,000 02
250,001–925,000 05
925,001–1,500,000 10
Over 1,500,000 12

Stamp Duty on non-residential property

Property value,
GBP
Rate,
%
Under 150,000
(with income of £1,000)
1
150,001–250,000 1
250,001–500,000 3
Over 500,000 4

The exact amount of Stamp Duty payable can be calculated using the official HM Revenue & Customs Service calculator.

Ownership taxes

There is no unified real estate tax in the UK. Instead owners and tenants pay council tax that goes towards police services, municipal authorities and street maintenance. The amount depends on the region and varies from £200 to £2,500 per annum. If a company owns residential property, they must pay Annual Tax on Enveloped Dwellings (ATED) of up to £218,200.

ATED 2015

Property value,
Millions GBP
Tax
1–2 7,000
2–5 23,350
5–10 млн 54 450
10–20 109,050
Over 20 218,200

Inheritance and capital gains taxes

Inheritance tax is 40% on assets over £325,000. It is also payable on gifts received from a donor who died within seven years of the gift deed date. Tax allowances may apply depending on the number of years between the gift deed and donor’s death, the degree of relationship between donor and recipient and finally, the type of property gifted. Situations when inheritance tax may not apply:

  • real estate transferred between spouses.
  • real estate registered to a company (even UK incorporated).
  • using a trust (but trusts are charged 6% tax every 10 years).

The tax burden may be relieved by life insurance, in which case the policy covers payouts. Life insurance does not reduce the tax burden but gives successors the means to pay.

Owners selling their property are charged Capital Gains Tax (CGT) at 18% for £31,865 or less and 28% for assets above this threshold. Tax allowances can reduce the taxable base. In 2015, this allowance was £10,900. CGT exemptions can apply in these cases:

  • sale of primary residence and less than 5,000sq m
  • foreign owner living the UK for more than 90 days
  • property transferred to a spouse or partner as a gift

Income tax is paid by residents on income earned both in the UK and abroad. Non-residents only pay tax on income earned in the UK. Rates range from 0% to 45%. Income under £10,600 is exempt and additional earnings up to £31,785 are taxed at 20%. The maximum income tax rate is 45%. Income tax is also charged on rental earnings from property.

Income tax 2015

Income,
GBP
Rate,
%
Under 10,600 00
10,600–42,385 20
42,385–150,000 40
Over 150,000 45

Corporate tax is 20% of a company’s income under £300,000. Revenue over this is taxed at 21%. Companies engaged in oil production are charged 19% and 30% respectively. The corporate tax base may be reduced based on production costs (maintenance, legal fees, agency charges, etc.) and borrowed capital.

Disclaimer: the information in the above article is for reference and may be subject to change over time. Persons interested in exact calculations should contact a certified tax specialist in this country before purchasing property.