Investing Overseas: A UK Property Tax Update for Non Doms

Property investing has been a proven path to building wealth in the past and there is no reason to suggest that building a property portfolio will not prove just as profitable for investors, who take a long term view.

Long-established estate agents such as have been selling properties throughout many different periods of highs and lows and they also see a fair percentage of overseas buyers.

Recent changes in tax rules for overseas owners mean that is essential that anyone who thinks that they may be affected by the updated rules, checks what impact this will have on their financial and tax situation.

Significant number of non dom buyers

Individuals who are not domiciles in the UK for tax purposes are generally referred to as non doms or expats, and there are a significant number of overseas investors who have put their cash into property based in London and other parts of the UK.

It is estimated that almost 70% of new-build buyers in prime central London were foreign nationals and almost half of them were not resident in the UK at the time of purchase. These figures provide a fair indication of the impact that new property tax laws for non doms could have

Larger stamp duty liability

There are a number of changes to the tax laws which will have a financial impact on overseas buyers and they will probably face a greater tax burden from when the new UK tax year begins in April.

The headline change that leaps out immediately is the increase in stamp duty payable by 3%. Stamp Duty is payable on virtually all home purchases, especially in more expensive areas of the UK where property prices are often beyond the minimum threshold.

The government has decided that the current property tax rules tend to favour landlords over owner-occupiers, so their intentions would appear to try and redress the balance and impose a greater amount of taxation on property investors, regardless of whether they own one or a portfolio of investment properties.

One significant point to note about the new rules is that the stamp duty changes apply to individuals, so companies and institutions who own property in this way are not affected by the updated tax rules.

Determining domicile status

It is always advisable to seek professional advice when it comes to your tax situation and potential liabilities, and you may want to seek clarification of the recent changes, which also includes clarification of what is deemed to be domicile status.

A non dom who lives in the UK and can prove that they have been resident continuously for at least 13 years by the time we reach the new tax year in 2017, could claim to be deemed as domiciled, which could make a significant difference to your potential tax liabilities.

Paying UK tax

Whilst it could prove advantageous in being able to claim domicile status, a non dom who falls into this category will no longer be able to just pay UK tax on the funds they remit to the UK.

What will now happen is that a non dom who is considered to be domiciled for tax purposes, will then be subject to UK tax on worldwide income and gains as they arise.

Inheritance tax

Another implication of your domicile status being confirmed is that you will become liable to pay inheritance tax on the value of all of your assets and not just on property that you own in the UK.

Inheritance tax planning is always a prudent move in any circumstances, but you need to be aware of the fact that these recent changes could create a potentially punitive tax exposure based on your worldwide estate holdings and not just what you own in the UK.

Offshore ownership

The UK tax authorities are also targeting property investments owned indirectly via an offshore structure.

It is therefore possible that you could face an inheritance tax bill from April 2017 onwards, irrespective of your domiciled status as the underlying owner.

Flat rate of charge

The government is proposing a flat rate of tax could be charged on occupation by a deemed domiciled non dom.

The specific terms of this proposed rule change are still being determined and there are scenarios where a tax charge may not be payable, but you should get updated advice on whether this may affect your own situation.

UK tax laws are famously complicated and these new changes can be considered complex in some respects, but one thing is clear, non doms need to check how these proposed changes will affect their tax liabilities.

Kyle Pickering is a real estate investor who now owns property in several locations around the world. He believes that property is the key to financial success and enjoys sharing his opinions on investment and finance related blogs.




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