UK: A Guide To UK Residential Property And Tax For Foreign Investors

Last Updated: 6 July 2016
Article by Oak Trust Group


Prime residential property in the UK, and luxury London property in particular, remains a popular investment choice for many foreign investors. Property in the UK has proved to be a solid investment choice over the years and has offered high capital growth and, where rented, good income returns for investors.

There have however been significant changes to the UK property tax regime over the past three years as the UK government has sought to fill deficits and, in their eyes, ensure everyone is paying their fair share of tax.

There are a number of tax charges that can arise on the purchase, the holding and renting, and sale of residential property in the UK. This guide summarises the tax charges that can arise and the importance of tax planning your existing and future UK residential property investments.

Options for Acquiring UK Property

The principal options for acquiring and holding UK property are as follows:

  • direct ownership by an individual;
  • ownership through a holding company; and
  • ownership through a trust.

Which option is appropriate, particularly in relation to tax, will depend on a variety of factors and these are explained in this bulletin.

Taxation of UK Property

There are five main categories of UK taxes that are relevant in the context of ownership of UK residential property:

  • stamp duty land tax (SDLT) is paid by the buyer on the purchase price;
  • annual tax on enveloped dwellings (ATED) is an annual charge levied on high-value residential property held through a company;
  • capital gains tax (CGT) on a disposal of the property at a gain;
  • income tax on any rental income from the property: and
  • inheritance tax (IHT) on transfers of value on death or, in specified circumstances, during an individual's lifetime.

Stamp Duty Land Tax (SDLT)

SDLT is paid by the buyer (individual, company or trust) on the purchase price. The rates of SDLT have been significantly increasing in recent years and from 4 December 2014 the actual effective rates are as follows:

Purchase price or transfer value SDLT rate
GBP 0 - 125,000 Zero
GBP 125,001 - 250,000 2%
GBP 250,001 - 925,000 5%
GBP 925,001 - 1,500,000 10%
GBP 1,500,001 or more 12%
GBP 500,001 or more owned by a company 15%

Different rates apply to different consideration bands and only the consideration falling in each band is taxed at that rate. There is a calculator on HMRC's website that will calculate SDLT.

Companies that purchase residential property pay in accordance with the scales above up to GBP500,000 and thereafter pay 15% on the value above GBP500,000.

The 15% rate does not apply to property that is:

  • held as a rental property and is rented to unconnected third parties (HMRC define connected as direct relatives (brother, sister, ancestor or linear descendants – cousins are not relatives) or related by marriage or civil partnership);
  • for public use (such as a museum);
  • bought by property developers for development or trade;
  • occupied by employees;
  • acquired by financial institutions in the course of lending; and
  • farmhouses (that are working farms).

Note that the property must continue with the above use for 3 years from purchase otherwise SDLT at the rate of 15% can be clawed back by HMRC if there is a change of use that does not offer relief.

The purchase of a company owning residential property will not give rise to an SDLT charge. Stamp Duty (at a rate of 0.5% of the purchase price) will be payable on the purchase of the company's shares.

Annual Tax on Enveloped Dwellings (ATED)

This so called "mansion tax" was introduced by HMRC to combat the ever increasing number of properties held through companies that were avoiding paying SDLT by holding residential property in corporate vehicles and selling the shares in the company rather than the property. The SDLT scope was changed to catch companies and saw the 15% rate introduced (detailed above), but HMRC took this a step further and also introduced ATED.

ATED is an annual charge on companies that hold residential property that is occupied by connected tenants (see definition above). Where a residential property is rented to an unconnected third party on commercial terms then relief is available from the ATED regime provided the relief is claimed annually in a return to HMRC. The additional reliefs noted under SDLT (farmhouses etc.) also apply to ATED.

ATED was introduced from April 2013 to catch properties held in companies that were valued above GBP2 million at 1 April 2012. In the Budget 2014 this threshold was reduced to GBP1 million with effect from 1 April 2015 and a further reduction to GBP500,000 was announced from 1 April 2016. This new band of properties between GBP 500,000 – GBP1m will have an annual charge of GBP3,500.

Property value 1 April 2013 - 31 March 2014 1 April 2014 - 31 March 2015 1 April 2015 - 31 March 2016
GBP 1,000,001 to 2m n/a n/a GBP 7,000
GBP 2,000,001 to 5m GBP 15,000 GBP 15,400 GBP 23,350
GBP 5,000,001 to 10m GBP 35,000 GBP 35,900 GBP 54,450
GBP 10,000,001 to 20m GBP 70,000 GBP 71,850 GBP 109,050
GBP 20,000,001 or more GBP 140,000 GBP 143,750 GBP 218,200

If the property interest is held on the first day of the chargeable period (i.e. 1 April), the full amount of the annual chargeable amount as set out in the table above is due. If the property interest is acquired during a chargeable period, a proportion of the annual chargeable amount is payable.

Capital Gains Tax (CGT)

ATED Related CGT

From 6 April 2013, UK and non-UK resident non-natural persons will be subject to CGT at 28% in respect of gains accruing on the disposal of interests in high value residential property that is subject to ATED.

Unless an election is made to use the value of the property on an earlier date, only gains or losses on the property arising since 6 April 2013 are relevant when working out the charge to CGT.

Relief is also available from this charge on the same basis as the annual charge. Where the property held has been let and owner occupied, the gain is apportioned between periods.

Non-Residents CGT (NRCGT)

Up until recently, in most cases non-UK residents paid no CGT in the UK when disposing of a UK residential property. As an exception, where ATED applies in relation to a property, gains accruing on disposal are chargeable to CGT (ATED related CGT). From 6 April 2015, NRCGT was introduced to capture the disposal of all UK residential property by non-UK residents subject to some limited exemptions, where for example the property is held by a widely held company such as an investment fund or the property in question is used as student accommodation or a nursing home. This applies to all non-UK residents including individuals, companies and trust.

Property holder CGT rate
Non-resident individuals 18% and 28%, but after annual exempt allowance (the rate depends upon total taxable income and marginal rate)
Non-resident companies 20%
Non-resident trustees 28%

Any gain arising from 6 April 2015 will be taxed. Where a property falls within the ATED regime, the ATED related CGT charge will take priority over the new NRCGT charge for non-residents. There is no minimum threshold for this charge to apply and there is also no exemption for rental properties or property developers unlike under the ATED regime.

When a property is sold a capital gain return has to be submitted within 30 days of the sale of the property with the payment of tax also being due within 30 days of the disposal. That is unless the entity is already subject to tax as, say, a non-resident landlord and then the tax may be paid in accordance with the 31 January and 31 July payments on account.

Income Tax

Properties held for rental attract tax on the rental income as follows:

Property holder Tax rate
Non-resident individuals Between 20% and 45%

(set by incremental bandings)

Non-resident companies 20%
Non-resident trustees of a discretionary trust 45%

As such all non-resident individuals and entities have an obligation to register with HMRC and file a Self- Assessment Tax Return each year.

Inheritance Tax (IHT)

In the Summer 2015 Budget, the government announced proposals to introduce new rules to ensure that UK residential property held directly, or indirectly by non-UK domiciled individuals or by excluded property trusts will fall within the scope of UK IHT. These changes will apply from April 2017.

UK domiciled individuals are subject to IHT on all their worldwide assets (subject to various reliefs and exemptions). Individuals who are neither UK domiciled nor deemed domiciled (often referred to as "non-doms") for IHT purposes, until April 2017, are only subject to IHT on their UK assets (whereas their foreign assets are excluded from the scope of IHT). Previously a non-UK domiciled individual could avoid UK IHT by holding UK property through an offshore structure typically utilising a trust and company structure. This will no longer be the case post 5 April 2017.

The intention is that this IHT change will apply to all UK residential property whether it is occupied or let and regardless of value. The IHT rate on death is 40% and the current nil rate band is GBP325,000. Holding UK situs assets in a trust attracts an IHT charge at each 10 year anniversary of the trust. Calculating the rate can be complicated, but in essence this is based at 6%, thereby giving a straight line cost of 0.6% per annum over the 10 year period.

In order to ensure the value of UK residential property is subject to UK IHT changes will be made to the existing Chargeable Transfer, Potentially Exempt Transfer, and Relevant Property Regimes (more information on this can be found on HMRC's website


Existing structures

Given the recent changes (including the substantial increase in ATED), it would be advisable to review existing arrangements. In some cases the substantial increase in ATED will prompt a re-examination of whether holding the property via a company is the best long-term option. Especially since the payment of ATED, post 5 April 2017, will not secure protection from an inheritance tax charge. Each situation – the purpose of the property being held and the longer term objectives – needs to be scoped, fully considered and costed out from a tax perspective to achieve the most suitable tax planning strategy.

Future purchases

There are three main options for acquiring property in the UK - individually, through a company, or through a trust. Which option is most appropriate (particularly in relation to tax) will depend on a variety of factors and must be scoped and assessed on a case-by-case basis to ensure the objectives of the property purchaser are understood and efficiently tax planned.

These recent tax law changes are being driven by a change in the UK political landscape and the drive for tax revenues. Tax planning is ever more critical and now is the time to assess your affairs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Michael Kyprianou Advocates & Legal Consultants
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Michael Kyprianou Advocates & Legal Consultants
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions