British expatriates with UK property need to be aware of all tax costs, including stamp duty, ATED and non-resident capital gains tax as well as inheritance tax implications.

Whether for practical, sentimental or financial reasons, many British expatriates keep hold of a house in the UK. But over recent years, the tax burden has increased for most UK property owners, with non-UK residents facing some taxes for the first time.

If you have UK property but live overseas, make sure you fully understand the tax costs. 

Capital gains tax 

For a long time, expatriates generally did not come into firing range for UK capital gains tax when selling UK property. 

Then, in 2015, non-UK resident individuals and trusts disposing of UK residential property became subject to ‘non-resident capital gains tax’ (NRCGT). This brought charges of 18% or 28% on growth accrued since 6 April 2015. 

This year, NRCGT was extended to include disposals of commercial UK property, UK land and indirect disposals of substantial interests in “UK property-rich entities”, unless an exemption applies. Where an asset is brought into NRCGT for the first time as a result of these changes, it will be rebased to its April 2019 market value. Assets already in the scope of NRCGT will continue to be rebased to April 2015.

Annual tax on enveloped dwellings (ATED) 

Residential properties that are not directly owned by an individual (or trust) – known as ‘enveloped’ property – come under the ATED regime. This includes homes owned or part-owned by a company, collective investment scheme or partnership (where one partner is a company). 

When ATED began in 2013, it only applied to enveloped properties worth over £2 million, but by April 2016 the valuation band had dropped to £500,000 – where it remains today. Current ATED rates range from £3,650 per year to £232,350 for properties worth £20 million+. 

The widening of the NRCGT regime has been accompanied by the abolition of ATED-related capital gains tax; a former 28% charge on gain from residential property within the ATED regime. Since 6 April 2019, companies disposing of UK property will instead be charged corporation tax on their gains, currently at 19%.

Inheritance tax  

In April 2017, UK residential property owned through certain offshore structures moved into the scope of UK inheritance tax. This change particularly affected ‘excluded property’ trusts owning residential property in the UK (directly or indirectly).

Now, non-UK domiciles who hold a UK residential property through an offshore company receive the same inheritance tax treatment on death as UK domiciles. This applies to all UK residential property of any value, whether occupied or let. 

If this affects you, it may be worth considering restructuring to avoid an unwelcome 40% inheritance tax bill as well as ATED liability. However, no tax relief is available for ‘de-enveloping’ property, so take care to understand your options and associated costs.

See five more things you may not realise about UK inheritance tax

Stamp duty land tax

Only first-time buyers benefit from stamp duty relief; for everyone else, the £125,000 threshold applies within England and Northern Ireland, with rates up to 12%. 

A 3% surcharge applies when purchasing additional UK residential properties, such as second homes and buy-to-let properties, bringing the top stamp duty rate to 15% (for properties over £1.5 million). Overseas properties are included, so if you own a foreign home and buy another in the UK – even if it is your only UK property – additional stamp duty may be payable. 

Instead of stamp duty land tax, Scotland and Wales charge transaction taxes on properties over £145,000 and £180,000 respectively, with a surcharge payable on second properties over £40,000 (Scotland charges 4%).

It is expected that an additional 1% stamp duty for non-residents buying residential property in England and Northern Ireland will be introduced in the near future. The UK government is currently reviewing responses to its recent consultation on this.

Other costs: Buy-to-let taxes, council tax and wealth tax

Buy-to-let tax relief cotinues to taper. Now landlords can only deduct 25% of their mortgage interest repayments against rental income (compared to 75% in 2017/18 and 50% last year). From April 2020, the entire sum of interest payments will qualify for a 20% tax relief instead.

Do not forget to factor in council tax charges and other expenses associated with owning UK property to establish its real value.

Remember: if you are living in France or Spain as a resident there, your worldwide real estate will be counted to assess your wealth tax liability here, so UK property could tip you over the threshold and increase your tax bill. 

Establish your options 

While many expatriates understandably want to retain property in the UK, the increasing tax liabilities need to be carefully considered, especially for second and subsequent properties. 

See three myths about investing in UK property

British expatriates living in Spain, France, Portugal, Cyprus, Malta, Monaco or Gibraltar can benefit from speaking to an adviser with in-depth knowledge of the tax regimes of both countries to ensure you hold all of your assets in the most tax-efficient way possible. They can also present opportunities that may offer much better tax advantages and returns than UK property.

Contact us to arrange a no-obligation consultation

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.