Introduction to UK Property Tax
Persons based in Hong Kong will often use a family company to purchase and own their residential properties for reasons of anonymity and ease of succession. In the past, this also gave certain UK Capital Gains Tax and Inheritance Tax advantages when purchasing UK residential property. However, the purchase of a residence in the UK should now normally be done in the name of the individual purchaser (or a nominee) because of the additional taxes that are levied when a company acquires beneficial ownership of a residential property and because of the elimination of many of the Capital Gains Tax and Inheritance Tax advantages of offshore company ownership of UK residential property by persons relocating to the UK.
When a UK resident individual purchases a residential property In England and Wales they will be charged the normal rates of Stamp Duty Land Tax which have a maximum rate of 12% on the slice of the purchase price above £1,500,000. If they or their spouse also own any other dwellings either in the UK or overseas then a further 3% will be added to the normal residential rates of SDLT. This 3% surcharge can however be reclaimed in certain circumstances when the UK property is intended to replace the purchaser’s only or main residence and the previous residence is disposed of within three years of the purchase of the replacement. An individual purchaser who is not UK resident at the time of purchase must also pay a further 2% non-resident surcharge although this too can be reclaimed if the purchaser becomes a UK resident within the 365 days following their purchase.
In contrast, a corporate purchaser of a residential property for more than £500,000 in England and Wales for the owner to reside in will be charged a flat 15% rate of SDLT. If the company is either a non-UK resident or controlled by a non-UK resident then the 2% non-UK resident surcharge will also apply and this cannot be reclaimed. A corporate owner will also have to pay the Annual Tax on Enveloped Dwellings or ATED on a dwelling worth more than £500,000 in amounts of between £3,800 and £244,750 per year depending on the value of the dwelling.
Tax Residence and Domicile Considerations when relocating to the UK
The main tax factor affecting someone relocating to the UK from Hong Kong is their residence status for UK tax purposes. Tax residence is decided under the Statutory Residence Test or SRT and this determines a person’s UK income tax and Capital Gains Tax liabilities. UK resident and domiciled persons are taxed on their worldwide income and chargeable gains.
Special treatment is currently available for individuals who are treated as UK resident but not domiciled or deemed to be domiciled in the UK. Such persons can use the remittance basis of taxation for up to 15 out of the previous 20 tax years. This means that they pay UK tax on UK income and chargeable gains but their foreign income and gains are only taxed in the UK to the extent that they receive, use or benefit from such amounts in the UK. The UK’s Labour Party has pledged to end the non-domicile tax exempt.
The remittance basis applies automatically if the non-UK source income and gains are less than £2,000 but will otherwise need to be claimed. If you are non-UK domiciled and have been resident in the UK for at least seven out of the previous nine tax years you will have to pay a £30,000 annual charge (the remittance basis charge) if you claim the remittance basis.
If you are non-domiciled and claiming the remittance basis and have been resident in the UK for at least twelve of the previous fourteen tax years, the remittance basis annual charge is £60,000.
Special care needs to be taken if you were:
- born in the UK; and
- acquired a UK domicile of origin at birth.
If so, you will be treated as a “formerly domiciled resident” for UK tax purposes and a stricter set of tax rules will apply. You will be treated as UK domiciled for Inheritance Tax purposes from the start of your second tax year of continuous UK residence, resulting in your worldwide assets being subject generally to Inheritance Tax.
Formerly domiciled residents are also treated as UK domiciled for income tax and Capital Gains Tax purposes if they are UK resident for the tax year so that the use of the remittance basis of taxation is not available to them. It follows that such UK resident individuals are taxable on their worldwide income and chargeable gains in the UK as they arise, regardless of where they are physically located.
There are also very strict UK tax rules relating to trusts established by formerly non-domiciled residents locating to the UK which charge UK tax on all the trust’s income and chargeable gains if the settlor can benefit from the trust. The trust will also be subject to the relevant property regime so that Inheritance Tax charges will apply when a ten-year anniversary of the trust occurs or the trust makes a distribution of UK or foreign assets. If the distribution of trust assets is proposed, this can be made at a time when the settlor is a non-UK resident or still within the one-year grace period for Inheritance Tax under the formerly domiciled rules.
How Can Patrick Cannon Help?
Patrick Cannon is a specialist tax barrister with a wealth of experience in offering expert guidance, advice and representation in all aspects of the taxation of Hong Kong and other residents relocating to the UK.
Whether you are concerned about SDLT on the purchase of a residence or are looking for help reclaiming overpaid stamp duty or wish to understand your UK income tax and CGT liabilities on your non-UK income and gains or are facing an HMRC tax investigation into your non-UK income or gains, contact Patrick here.
Patrick is authorised by the Bar Standards Board to accept Direct Access work and to undertake litigation, which means that he can advise corporate or private clients directly, and deal directly with HMRC on their behalf without the need to hire a solicitor.
Patrick works on the basis of fixed fees agreed in advance via his Clerk, and he does not charge open-ended hourly rates.