Do you know tax rules and property regulations guide in England, Sittingbourne home, Buying Kent house tips
Do you know Tax Rules and Property Regulations?
18 March 2022
As Being A Property Buyer Are You, Familiar, With Tax Rules & Property Regulations?
Most residents dream of owning a property. Many say that before buying a house, the first crucial step to do is to find the best estate agents in Sittingbourne. But there are a couple of questions you need to ask yourself while purchasing a property – How familiar am I with the property price? Am I well aware of the tax rules and regulations?
Since these are some of the most important aspects to consider, let’s jump right into it!
Are You Familiar With Tax Rules and Property Regulations?
Property price
In February 2022, the average UK house price saw an upsurge of 10.8% and reached a record number of £278,123 with an average growth of 0.5%.
The average value of a property has risen by 16%, which means £38,709 since February 2020 right before COVID-19 began spreading. According to market research, the UK housing market had a slow start to the year when the rise in the price of properties was by £1,478 in cash terms. This also marked the eighth successive month of growth in property prices. Such resilience in the real estate market has instilled hope in people for a promising future. While this sounds like good news to investors, sellers and estate agents, the rise of price also had a devastating effect on common people.
The interest rates continue to rise along with inflation. The cost of utilities is spiralling out of control, and when combined, it puts immense pressure on households. This rise in property price will have an impact on the new and old home buyer’s ability to afford any kind of property. Hence, a significant plunge in demand for properties is also expected in the upcoming months.
The UK Government has recently focused on establishing taxes on residential properties that have resulted in many changes and added more complexity to the existing tax system.
Here is a brief guide to property tax and regulation.
Stamp Duty Land Tax (SDLT)
Whenever you purchase property in the UK, you are liable for paying the SDLT. Two crucial factors influence the rates- the value of the property and the nature of the property. Check for different rates applicable to different bands of the property value. Potential home buyers should also be aware of an SDLT ‘surcharge’.
This charge is applicable when an individual buyer or spouse wants to buy any kind of residential property in the UK but already owns other residential properties (in any other part of the world) and will continue to be the owner after the purchase is completed. If the surcharge is applicable, it is an additional 3% SDLT. Hence the rates applicable may stand anywhere between 3% and 15%. But there are certain reliefs available for specific circumstances, and one can reclaim the additional 3%.
If companies make the purchase or any other ‘non-natural persons’, then a punitive rate of 15% on the buy is applicable. Exemptions from this include some rental businesses, etc.
Inheritance Tax (IHT)
IHT is to be paid on death, gifts into trusts, and UK assets for those people who are not domiciled in the UK. Whenever an offshore company holds any UK residential property, it is deemed as ‘UK situs’ for the sake of tax from April 2017. These properties are also subject to IHT upon the demise of the shareholder.
Above the Nil Rate Band of £325,000 (charged at 0%), 40% IHT is applicable. But many reliefs are also available. In order to mitigate IHT, many people consider giving away their property to their children who are minors. Although it might seem appealing at first, there can be cases of severe tax disadvantages. Residential property buyers should also opt for early advice in these cases before a gift is made, as it is difficult to unwind after it has already been done.
Non-Resident Capital Gains Tax (NRCGT)
NRCGT has been payable at 28% since April 2015 for all gains realised by non-residents when a residential property in the UK is disposed of. In some cases, an 18% rate will be applicable. Whenever there is an increase in the value of a property, i.e. a difference is generated between the price at which it was purchased and the value of the same property on the date of disposal, NRCGT is applicable. The time limit for NRCGT filing and tax payment is 30 days (from the date of disposal).
NRCGT is to be paid on all disposals of residential property, such as gifts to family members.
Annual Tax on Enveloped Dwellings (ATED)
ATED is known as an annual tax on properties that are owned by ‘non-natural person’ like companies and are worth more than £500,000. Depending on the value of a property, the amount of ATED to be paid can range anywhere between £3,650 and £232,350. The amount of ATED to be paid is subject to increase with inflation and needs to be filed every year. While relief is available in specific situations, it should be claimed in annual ATED return.
Income tax
Whenever you purchase UK residential property for renting it out to tenants, you are liable to pay income tax on your rental income. Depending on the amount of income, the rates can range between 0% and 45%. After the completion of a UK tax year (5th April), all non-resident landlords must submit a tax return in order to declare all kinds of rental income and pay any income tax that’s due.
Succession planning
If a will is not available, a matter of succession to any UK property comes under the jurisdiction of UK intestacy law. A word of caution- the rules of intestacy may not align with your wish and might lead to a negative tax outcome. Hence, we strongly recommend people to make an English Will whenever any property is purchased in England in order to secure a favourable position on matters of succession and tax upon the demise of the property owner.
Do you know tax rules and property regulations – Bottom line
Matters of property tax and regulation require careful planning and consideration prior to the decision of making a purchase as it might alter your affordability of properties. Hence, seeking advice early is always necessary to avoid any unpleasant surprises.
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