When acquiring UK property
SDLT
The SDLT 3% surcharge for additional dwellings has increased to 5% with effect from 31 October 2024. Examples of purchases caught by this surcharge include:
- a company purchasing a single residential property
- an individual buying a second residential property which is not replacing their main residence.
This brings the top rate of SDLT to 19% for purchases caught by the 5% surcharge and the 2% non-resident surcharge. This top rate is payable on the part of the purchase price above £1.5 million.
If a purchase takes place pursuant to a contract entered into on or before 30 October 2024 (even if completion occurs after that date) then the surcharge should remain at 3% provided certain conditions are met, including no variation or assignment of the contract. That would make the top rate (payable on the part of the price above £1.5 million) 17%.
Not all purchases of residential property fall within the 5% surcharge. For example, the purchase of 6 or more dwellings in a single transaction is treated as a non-residential purchase for SDLT purposes with the result that the maximum rate of SDLT is 5%. This compares to the SDLT rate of 19% on the part of the price above £1.5 million for non-UK resident investors acquiring, say, 5 dwellings.
The SDLT rate of 17% (assuming the 2% non-resident surcharge applies) has also increased by 2% with effect from 31 October 2024. This is a flat rate of SDLT paid by non-natural persons buying a dwelling worth more than £500,000 where a relief is not available. A company buying a home for the personal use of its shareholder would not qualify for relief from this rate.
It remains the case that no SDLT liability arises when buying the shares in a company that owns UK property (although UK stamp duty may be payable at 0.5%).
When owning UK property
Tax on the rent
UK income tax rates remain the same and so investors holding UK property in their own name should not pay more tax on the rent following Budget 2024. The same applies for investors holding UK property in a company - the headline rate remains at 25% with a small profits rate of 19%.
Inheritance tax
For investors who have never been UK resident, there should not be any changes to the UK inheritance tax position. Broadly, UK residential property is within the scope of UK inheritance tax, whether held through a UK or non-UK structure, but non-residential property is outside the scope if held through a non-UK corporate structure.
For investors who have been UK resident, the position from April 2025 is more complicated and non-UK assets (such as shares in commercial property-owning companies) could be within the scope of UK inheritance tax.
Annual tax on enveloped dwellings (ATED)
As expected, the rate of ATED is again increasing in line with the consumer prices index (CPI).
ATED is paid by non-natural persons holding a dwelling worth more than £500,000 where a relief is not available. For example, a company owning an apartment worth £600,000 for the personal use of its shareholder would not qualify for relief and would pay ATED.
Alternative finance
For investors utilising Islamic finance products, changes have been made to ensure that:
- no capital gains tax or corporation tax arises on a refinancing when none would have arisen under a conventional refinancing; and
- no ATED should be due during ownership of the property when none would have arisen under a conventional financing product (such as an interest-bearing loan from a bank).
When selling UK property
The main rate of capital gains tax has increased from 10% to 18% (for gains within the basic rate tax band) and from 20% to 24% (for gains in excess of the basic rate band). Capital gains tax is paid by individuals selling UK property and also shares in UK property rich companies. This aligns the main rate with the special rate for gains on residential property and so for individual investors holding UK property in their own name, there is no difference between residential and non-residential property. This assume that no reliefs apply e.g. principal private residence relief.
