Buyer's guide to tax - tax and the overseas landlord
There are many reasons why investors from abroad find the UK property market so attractive, but one of the most important is tax. UK regulations treat overseas landlords generously, and recent changes to the law have made the tax climate even more liberal. However, it is important that overseas investors arrange their affairs properly, in order to benefit from the tax concessions, and take appropriate professional advice.
In theory, overseas landlords could be affected by the following taxes, but in practice these are seldom a deterrent to profitable investment.
• Income Tax applies to all rental income arising in the UK. However, a variety of allowable expenses including financing costs, maintenance and repairs, and certain professional fees generally make it possible to reduce a tax liability very considerably, or even eliminate it altogether.
• Inheritance Tax applies to all personal assets situated in the UK - above certain lower limits - no matter where the owner resides. Once again, however, this is a tax that can usually be avoided, with suitable advance planning.
• Capital Gains Tax now also applies to overseas residents as well as UK residents. This only implements the same taxation for overseas and UK residents and not in favour of the UK residents.
• Corporation Tax could in certain rare circumstances arise if an overseas investor is buying and selling UK properties frequently, and if HM Revenue & Customs considers that trading is taking place. Investors with ambitious plans should ensure that they are fully aware of their tax position.
It is essential for the overseas investor to seek professional advice from a tax expert specialising in UK tax. Pitfalls can trap the unwary, but there are ways of avoiding exposure and professional help should always be sought.