How do recent tax changes affect overseas owners of UK property?
Recently, there have been a number of changes to taxes on UK residential property. But it’s not always easy to decipher the smallprint and some London property owners may be wondering how these developments affect them. So here is our guide to the most important issues and what you need to do to comply with the new rules.
Non-natural persons owning property valued at more than £2,000,000
In April 2013 new regulations were introduced for non-natural persons owning UK residential property valued at over £2,000,000 that is not being rented out.
The April 2013 changes:
– 15% Stamp Duty
– A new annual charge – the Annual Tax on Enveloped Dwellings (ATED)
– Capital Gains Tax (CGT) at a rate of 28% on the sale of property, by overseas, nonnatural persons (ATED related CGT)
Reductions in the threshold for ATED, ATED related CGT and Stamp Duty
In the 2014 Budget, it was announced that there would be reductions in the thresholds originally introduced in April 2013.
From April 1st, 2015, the threshold for ATED and ATED related CGT will be reduced and will apply to properties valued at over £1,000,000.
And from April 1st 2016, the threshold for ATED and ATED related CGT will again be reduced and will apply to properties valued at over £500,000.
The threshold for the 15% Stamp Duty rate payable for non-natural persons purchasing UK property not being rented out was reduced to £500,000 from the Budget date.
ATED returns must be completed by non-natural persons with UK property above the threshold values even if they are exempt because the property is rented out
Perhaps the most immediate concern is that now, any non-natural persons owning UK property with a value over the threshold must submit an ATED return. This applies even if the property is being rented out and there is no tax payable. The exemption simply needs to be claimed on the ATED return.
Although most of our clients will be exempt from any ATED payment, failure to submit a return could lead to a penalty.
And with the threshold at which returns are required to be submitted being reduced significantly, many more investors will need to arrange for an ATED return to be prepared.
CGT for non-residents
CGT will be introduced for all overseas owners from April 2015. This will only apply to future gains from April 2015 – any gains made before April 2015 will be exempt. The rate has not been announced but is likely to be 18% of any net gain for basic rate taxpayers and 28% for higher rate taxpayers.
What should overseas property investors do now?
First, you will need to be more aware of the value of your properties, arranging a professional valuation if and when required (we can organise this for you).
Next, consider using a professional ATED return service to ensure you comply with the new regulations (again, we can offer this service). We can take care of the ATED return for our clients, saving the time and hassle involved in completing the paperwork and ensuring all the information is correct.
By Vidhur Mehra, Finance Director
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