The real estate market in the UK is one of the biggest in Europe, valued at over 1.2 trillion pounds GBP. Despite the COVID-19 pandemic and Brexit, the sector gave jobs to 542,000 people and generated over GBP 68.1 billions just in 2022.

Investing in real estate in the UK is a safe bet, because it can offer you great returns at a really low risk, as the prices have been rising in recent years due to a low supply and a growing demand in great cities. In fact, in 2020 the average house price in London was at GBP £552,755, twice as high as in the West Midlands.

Real estate in the UK includes multiple activities, such as buying, selling, renting and operating own or leased properties. Also, this sector is commonly divided into residential and commercial.

If you are considering investing in a property development project in the UK, besides financial and legal considerations, it is crucial to take tax advice in order to ensure that the project is structured so as to achieve maximum tax efficiency.

Optimising your taxes is a must in any project you invest in even before the structure is agreed, changing the structure at a later date may expose you to higher tax liabilities.

Investors and lawyers who have a deep knowledge of the local market will know the perfect legal structure to optimise taxes. If you are a non-UK resident who does not know about the British market, you don’t have to worry, we are here for you.

In this article we will tell you everything you need to know in order to structure a property in the UK so you can optimise your taxes, emphasising on non-residents.

Tax liability in the UK for real estate

When you invest in a real estate project in the UK, some tax issues will arise depending on the type of project. We will explain you some of the variables:

• The type of land. For example, it could be development land or there could be some other properties.
• The purpose of the development project. Whether the intention is for immediate resale after building or if the properties are created for another purpose, like commercial or residential buildings.
• The use of the building, if it was designed to have a commercial or residential use.
• The size of the project and the stakeholders.

Tax liability for real estate investment will depend on those variables, the expected use of the building being a key issue.

In the next section we will expand on it.

Tax on properties in the UK

About Corporation tax

If a company is holding a real estate investment in the UK, it will be subject to the corporate tax rate on its UK property income and gains from direct disposals of the UK land.

This will differ depending on if the property is used as an investment or a trade (resale). It distinct’s whether the asset is being held to generate a rental income or if it is being held to be resold in the future.

About Income and capital gains taxes

Rents from real estate are subject to income tax for non-corporate investors, whether they are residents or non-residents. This is the case for individuals and trustees of a trust.

Gains made by non- corporate investors when selling the asset are subject to the capital gains tax (CGT) up to 28% of the value of the property.

About annual tax on enveloped dwellings (ATED)

This is an annual tax payable by companies holding residential property that is valued at least at GBP 500,000. This tax was created in order to discourage companies from reducing the limited housing stock. Like we said above, the United Kingdom has a serious shortage of the supply of residential properties.

About the Value Added Tax (VAT)

The VAT applies for most goods and services supplied in the UK unless the goods or services are exempt. This is often the case for real estate properties.

About property transfer taxes

This type of tax is charged on the acquisition of a property. The amount will depend on whether the land is in England, Northern Ireland, Scotland or Wales.

Stamp Duty Land Tax (SDLT)

This is a progressive tax paid when purchasing a shared ownership of a residential property in England or Northern Ireland valued at over GBP 125,000

About council taxes

UK property owners must also pay local taxes, which will differ depending on the location and if the property is commercial or residential.

Options for property structuring in the UK

There are dozens of ways to structure a UK residential property purchase. Each method has its own advantages and risks depending on the conditions that the purchase is made and the person’s circumstances. There are three main ways to hold a residential property in the United Kingdom: own it as an individual, own it through a company or through a trust.

Below, you will see a chart comparing those options in each stage, from the acquisition, ownership, sale to death of the owner. This information is based on the UK tax regime for the 2021-2022 period.

	Individual	Company	Trust
Purchase	SDLT to 14% for non residents	SDLT at 17% for non residents	SDLT at 17% for non-residents
Ownership	No ATED	ATED between GBP 3,700 to 237,800 every year.	No ATED
Income tax between 20 to 45% of the rents	Corporate tax at 19%	Income tax between 20 to 45% of the rents
Sale	Exemption if its main residence. Otherwise, Capital gains between 18 and 28%	Corporate tax at 19%	Exempted if its main residence. Otherwise, capital gains between 18 and 28%
Death	Inheritance tax up to 40%	Inheritance tax up to 40%	Inheritance tax up to 40%

What can we do for you?

At Sandstone Tax, our mission is to have our clients happy and with money coming into their pockets.  That’s why our team of experts is always looking for new opportunities around the world for our clients.

The United Kingdom has a resilient and strong real estate market, investing in it will ensure you high returns at a really low risk. However, putting your money in the British market can be a risky task if you don’t have the proper advice.

In order to make your life easier, we will provide Sandstone clients with world-class advice when structuring a property in the United Kingdom. This is supported by Sandstone employing some of the best consultants in the market.

We will provide you the best advice and ensure a maximum tax efficiency for your property.