Buy to Let

If a property is based in the UK, an individual will pay income tax on their rental profits at tax rates ranging from 20% – 45%, which depends on the level of their other income within the same tax year. This tax is charged regardless of where they live. UK-tax residents are generally entitled to an annual tax-free allowance to be set against their rental income.

As for gains arising on the sale of rental property – individuals are usually entitled to an annual exemption unless they are non-UK domiciled and claiming the remittance basis. Non-tax residents may need some careful consideration, especially in the years of emigration and immigration.

From April 2021, mortgage interest relief is restricted where the natural person owns properties. This means it could affect investors into either high rate taxes, which may also impact their universal credit availability.

Non-resident individuals disposing of UK residential property are still subject to Non-Resident Capital Gains Tax (NRCGT) at the higher rates for residential property gains (18% / 28%).

Since April 2019, gains on the disposal of any UK commercial property held by a non-resident ‘person’ are taxable. The property is rebased to its market value on 5 April 2019 when calculating the gain. An election can be made to use the total gain (or loss) since acquisition. Gains of non-resident individuals and certain trustees are subject to Capital Gains Tax (CGT) at the standard rates (10% / 20%).

With high-value properties kept under the limited company structure, there is an anti-avoidance provision. As such, companies are required to submit Annual Tax on Enveloped Dwellings (ATED). ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

You’ll need to complete an ATED return if your property:

• is a dwelling.
• is in the UK.
• was valued at more than:
  • £2 million (for returns from 2013 to 2014 onwards).
  • £1 million (for returns from 2015 to 2016 onwards).
  • £500,000 (for returns from 2016 to 2017 onwards).
• is owned completely or partly by a:
  • company.
  • partnership where any of the partners is a company.
  • collective investment scheme – for example a unit trust or an open ended investment vehicle.

Please note that returns must be submitted on or after 1 April in any chargeable period.

There are reliefs and exemptions from ATED. For example, genuine property rental businesses have relief available from the charge. The legislation states that a company must meet two conditions to be a qualifying property rental business:

• The business must be a property rental business as defined in CTA2009.
• It must be run on a commercial basis and with a view to a profit.

You can find more about ATED charge on the official government website.