21/04/2016

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Foreign buyers of UK property face overwhelming tax challenge: expert

Many property agents and developers marketing prime London homes in Singapore like to espouse the benefits of investing in the British capital, such as its global-city appeal, prospects for capital appreciation amid a housing shortage, and the British pound’s weakness in recent years, but very few investors here are aware of the increasing complexity of the UK’s taxation system.

Steven Knight, Chairman of Gibraltar-based Castle Trust Group, a financial services firm, told PropertyGuru that Singaporean buyers face an “overwhelming challenge with new taxes being introduced gradually, cancelling out the advantages that non-UK residents had in the past”.

For instance, they will have to pay £3,500 a year in annual tax on enveloped dwellings (Ated) for properties bought for at least £500,000 from April this year. First introduced in 2013, the previous payment threshold started at £2 million, but was expanded last year to include residential properties owned by foreigners worth more than £1 million, said Knight, adding that the amount of tax payable increases with the property’s price.

The Ated aims to deter foreign buyers from avoiding stamp duty and inheritance tax by holding properties through corporate entities, which many have been doing.

From April 2017, non-UK residents and offshore companies owning UK homes will also be subject to UK Inheritance Tax, currently at 40 percent on death, which Knight called “a big wake up call for Singaporean and other Asian buyers”.

Other recent changes also mean that capital gains are now subject to tax.

“I have noticed a large number of overseas buyers who have not been filing their tax returns, which results in fines and penalties for unpaid taxes, while interest continues to accrue on the unpaid balance,” warned Knight.

“Planning can reduce exposure to taxes, in some cases entirely, but it needs careful consideration.”

He revealed that the group offers a range of structures to help overseas nationals with properties in London address these tax issues, one of which is an international pension plan. How it works is an international tax advisor would review the tax exposure of the client and come up with an independent report on how best to proceed, and whether such a plan is needed, said Knight.

“A lot of foreign pensions are tax-free. In Asia, foreign pensions are not taxed and are compliant with HRMC (Her Majesty’s Revenue and Customs). The more expensive a property, the more urgent the need for planning.”

Other structures available include a dual trust arrangement, multi-generational wealth planning and insurance coverage.

Citing data from the UK Land Registry, Knight stated that buyers with Singaporean addresses are the second most prolific buyers of prime London properties, after those with local addresses.

Picture Source: Apartment buildings in London.
Source copied: http://www.propertyguru.com.sg/property-management-news/2016/2/118222/foreign-buyers-of-uk-property-face-overwhelming-tax-challenge-expert

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