If someone is looking to invest in UK property for the first time, they are faced with the daunting prospect of understanding a new market. Due to the complexity of the UK and Spanish tax systems, investors will require professional accountancy services to make sure that their tax structure complies with local laws, minimises tax liabilities, and is well suited to their portfolio objectives.
Our Corporate Financial Consultant, Simon Antonis, has outlined everything investors need to know about the current stamp duty holiday, as well as the implications income tax and capital gains tax will have on their investments.
What are the benefits of the stamp duty holiday?
In the wake of the Covid-19 pandemic, the government introduced a temporary stamp duty holiday on 8 July 2020, which will be in place until 31 March 2021. This has had a significant impact on those looking to buy property valued up to £500,000.
This means that for anyone that is a first-time buyer or only owns one property, they won’t pay any stamp duty up to £500,000. Companies or investors that own two or more properties will also benefit, as under this incentive they will only pay 3% in stamp duty. This is half of what they would have usually paid on a purchase price of £500,000.
What is income tax and what does it mean?
Rental income from UK property is classified as UK sourced income, so both UK tax residents and non-residents would be subject to UK income tax on the net rental income they receive from renting out UK residential property. The net rental income would be gross rental receipts minus allowable expenses, such as service charges, maintenance costs and management fees.
For non-residents, the net rental income will be added onto any other UK sourced rental income for that tax year. For residents, it will form part of their total income for the tax year. For investors acquiring UK property through a limited company rather than acquiring the property in their personal names, the company will pay the tax on the net rental income.
For the 2020-21 tax year, all UK tax residents are entitled to a personal tax free allowance of £12,500. This is only applicable for non-residents of certain countries, find out if you’re eligible here.
The below tax bands are then applied to taxable income for this tax year:
- Up to £50,000 is 20%
- From £50,000 to £150,000 is 40%
- Over £150,000 is 45%
- Companies flat rate at 19%.
What is capital gains tax and what does it mean?
Capital gains tax is payable on the net gain achieved through the disposal of a capital asset. This would be something that is held to generate income or capital appreciation, as opposed to an asset held for trade.
For example, if an investor is buying and selling property on a short-term basis they would pay income tax, whereas if they are holding an asset to generate income on a longer term basis they would be subject to capital gains tax when they eventually dispose of the asset.
Residential property rates are 18% (10%) for lower rate tax payers and 28% (20%) for higher rate. The tax free annual allowance is £12,300. Companies pay capital gains tax at 19% with no tax free allowance.
GRE Assets offers a full range of investment portfolio services including property management, tax and legal advice.