Hundreds of British expats like to keep a toehold in their home country by investing in buy to let property.
British property offers a stable market, good rental yields and property values that have doubled every 10 years or so.
But there are a lot of potential tax traps waiting for the unwary expat property investor.
This guide explains what they are and when the money is due.
Entering the UK property market
One of the biggest buying costs besides the price of the property is Stamp Duty Land Tax (SDLT) or just stamp duty.
SDLT is worked out according to the property value and paid on completion of the purchase.
It’s really an interest-free loan to the government for the time you own a property because SDLT is reimbursed in full on the sale of a buy to let property.
SDLT – Purchasing a buy to let property
| Purchase price bands (£) | SDLT rate |
| Up to 125,000 | 3% |
| The next £125,000 (the amount between £125,001 to £250,000) | 5% |
| The next £675,000 (the amount between £250,001 to £925,000) | 8% |
| The next £575,000 (the amount between £925,001 to £1.5 million) | 13% |
| The remaining amount (the amount above £1.5 million) | 15% |
Source: HMRC
EXAMPLE:SDLT on a £475,000 property bought as a buy to let rental works out like this:
£0 – £125,000 = £125,000 x 3% = £3,750
£125,001 – £250,000 = £125,000 x 5% = £6,250
£250,001 – £500,000 = £225,000 x 8% = £18,000
Total SDLT = £28,000
Special rates apply to properties bought by companiesand some other purchases.
Taxes during investment property ownership
During the period of ownership, expats must be aware of other taxes they must pay on top of the usual running costs of the property.
These include accounting for rental profits under the Non-Resident Landlord Scheme and the annual charge due if the property is owned by a company.
The Non-Resident Landlord Scheme
If you are an expat renting out a buy to let home, you should register to pay income tax under the Non-Resident Landlord Scheme.
Non-resident when applied to buy to let landlords is used in a different context than usual for tax purposes.
Someone who is non-resident usually pays income tax in the country where they live, but in this case, a non-resident landlord pays income tax on rental profits in the UK.
To be classed non-resident, the landlord must live outside the UK for at least six months.
If the landlord is non-resident and the rent is more than £100 a week, the tenant or letting agent must deduct and pay the taxover to HMRC. The net amount is paid to the landlord.
Once in the scheme, the landlord files a self-assessment tax return each year accounting for rent and expenses.
| Income tax rates and thresholds 2018-2019 | |
| Personal allowance | £11,850 per year |
| UK basic tax rate | 20% on annual earnings between the personal allowance and up to £34,500 |
| UK higher tax rate | 40% on annual earnings from £34,501 to £150,000 |
| UK additional tax rate | 45% on annual earnings above £150,000 |
Source: HMRC
Annual Tax on Enveloped Dwellings (ATED)
ATED is paid each year by companies owning homes in the UK worth more than £500,000.
The rates for 2018-19 are:
| Property value | Annual charge |
| From £500,000 to £1 million | £3,600 |
| More than £1 million up to £2 million | £7,250 |
| More than £2 million up to £5 million | £24,250 |
| More than £5 million up to £10 million | £56,550 |
| More than £10 million up to £20 million | £113,400 |
| More than £20 million | £226,950 |
Source: HMRC
Exiting the UK property market
Capital gains tax (CGT) is paid on the disposal of residential investment property in the UK.
Tax due is paid within 30 days of completion of the sale.
HMRC has an online calculator to help work out CGT for expats.
The gain is rise in the value of a property less the purchase price and some specific expenses.
The expenses include:
- Buying costs – like the purchase price, legal charges and SDLT
- Improvement costs, providing the improvement is still in place on disposal of the property. These could include any spending adding value to the property, such fitting central heating or building a conservatory
- Any cost in defence of the title – like legal or professional witness costs related to a boundary dispute
- Disposal costs, like estate agent or auction costs and legal fees
CGT rates for individuals in 2018-19 are 18% for basic rate taxpayers and 28% for higher/additional rate taxpayers.
Basic rate tax payers pay CGT at 18% up to an amount of gain equal to their unused income tax basic rate band and at 28% on any amount above this.
Higher/additional rate tax payers pay CGT at 28%.
SDLT reimbersument, really? Where is your source?
What about a subsequent capital loss on disposal? Does HMRC have to repay CGT within 30 days?