The imminent Brexit has already triggered a raft of changes to the UK landscape. A few weeks ago the UK government announced that they were seeking to scrap the human rights act and substitute it with a political lead law, and that didn’t even make UK headlines. Pomona Wealth a Swiss based wealth management firm, will take a look at other changes that have been slipped under the carpet by the current UK government especially in the area of UK Property, a favoured investment theme.
The Old Regime
The basic tax regime applying to UK residential property entails that a transfer tax (Stamp Duty Land Tax) is payable by the purchaser, income tax is paid on rent, capital gains tax payable on sale and inheritance tax chargeable on death or if the property is subject to lifetime estate planning using a trust.
For an international investor, capital gains tax was of no concern and ownership through a non-UK company provided complete protection from inheritance tax. Even Stamp Duty Land Tax could be easily and legitimately avoided, although this was not generally something we advised. Over the course of the next few weeks we will look at the new realities of the tax regime on UK properties for all investors.
The New Situation
On rented properties tax is due at a rate of up to 45% for individuals and 20% for companies. Interest on borrowing and other allowable expenses are deductible from income, and interest relief is reduced for individuals.
Capital gains tax:
Non-resident individuals, companies and trustees are now taxable on gains
For individuals the financial gain at the time of selling the property is taxed at 18% or 28%. Since April 2015 this method of taxing also applies to non-resident individuals. There is potentially complete relief from tax for the gain on a person’s principal private residence (PPR relief), but they must spend at least 90 nights per year in the property for this relief to be available.
In the case where a UK company disposes of a property it is taxed on the gain at corporation tax rates (currently 20%). PPR relief is not available.
If a non-UK company disposes of a property where ATED applies, it is taxed at 28% for the growth in value since April 2013 (or the acquisition date if later) or if ATED does not apply, it is taxed at 20% on the growth since April 2015. PPR relief is not available. Furthermore if the company is owned by a UK resident individual (or a trust settled by such an individual) then the individual may also be taxable on the gain (with PPR relief not being available).
Rebecca Ellis is Managing Partner at Swiss based wealth management firm Pomona Wealth Management. For more information, please contact Rebecca Ellis at Pomona Wealth + 41 79 789 5313 or email@example.com.
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