How to Handle Property Taxes as a New Homeowner in London

Understanding the tax landscape will help you navigate the financial responsibilities that come with owning a property in London.

As you consider relocating to the UK, there will come a time when you will consider buying land, a house, or a flat. Investing in real estate is a smart way to protect your money from inflation.

Moreover, renting out a flat, house, or office in the UK can give you a steady income. But before you purchase property in Great Britain, make sure to check the costs of maintaining it and the taxes you have to pay to the government.

Is there property tax in the UK?

In the UK, there are several property taxes that homeowners must be aware of and comply with.

How much tax do you have to pay for your property in the UK?

The amount of tax you will pay on your UK property depends on a few things that can be summed up in 5 questions.

1. What is the cost of your property?

2. What is the location of your property?

3. What are your intentions for the property?

4. What kind of ownership are you buying? In simple terms, who owns the land your house is on?
5. Do you have any other property?

Stamp Duty Land Tax (SDLT)

Currently, when purchasing real estate in the UK, the state imposes a charge called SDLT. Corporate purchasers are required to pay a fixed rate of 15%.

For individual property buyers, the stamp duty rate fluctuates between 0 and 17%. The amount you pay depends on the purchase value, immigration status, and existing property ownership.

Recently, the UK government raised the stamp duty rate by 2%, specifically for foreign buyers.

So, when buying a home or planning your home removals remember to factor in this tax to avoid any unpleasant surprises.

For your initial residential purchase, there will be no stamp duty if the property costs less than £300,000.

If the value exceeds £300,000 but remains below £500,000, the initial £300,000 will be untaxed, and the remaining amount will incur a tax rate of only 5%. However, if the value exceeds £500,000, additional property rates must be applied.

There are alternative methods to reduce or eliminate SDLT (Stamp Duty Land Tax). To determine your eligibility for any reliefs or exemptions, consult a property specialist.

Ground Rent

If someone else owns the land your house is on, it’s called a leasehold. If you are buying a leasehold property, you may have to pay ground rent.

Ground rent is a fee you pay to the landowner on which the property stands. And it’s paid annually. It is usually a fixed amount, but it can increase over time.

Before purchasing a leasehold property, make sure you understand the ground rent terms and factor it into your financial planning. This will help you avoid any surprises down the line when moving house to London.

Also, remember, in the UK, you can buy freehold properties where you own both the land and the house.

Council Tax

If you are renting a property, it is your responsibility as a tenant to pay the council tax. This money is collected by the local council and is used, in part, to maintain the surrounding area where your house is located.

The council tax rates vary depending on the location and price range of similar properties. If you are buying a property in Northern Ireland, the rates will be unique to that area.

All property owners or tenants who currently reside in a property are required to pay council tax, except for those who temporarily vacate the property for renovations. Students are eligible for discounts.

Annual Tax on Enveloped Dwellings (ATED)

ATED is an annual property tax paid by companies that own residential properties in the UK worth over £500,000. Typically, this tax is paid when submitting a tax return at the end of the financial year, specifically in April.

The amount of tax paid to the Treasury depends on the property’s market value at the time of purchase or, if the property has been owned for a long time, the revaluation that occurs every 5 years after the purchase.

Who doesn’t need to pay ATED?

Companies, partnerships, or investment funds are exempted from paying ATED in the following scenarios:

1. If the residential property is rented out to unrelated third parties.

2. If the property is open to the public for at least 28 days per year.

3. If the property is owned by a commercial company or agricultural enterprise and is used as corporate accommodation for employees.

Make sure to seek professional advice if you own such property to ensure compliance with ATED regulations and manage your tax obligations effectively.

Rental Income Tax

Rental income is subject to income tax, and you are required to report and pay taxes on the rental earnings.

So keep track of all your rental income and expenses, as they will be needed to calculate your taxable rental profit. Consulting with a tax professional can help you navigate the complexities of rental income tax and ensure you meet your obligations.

Inheritance Tax

I know, talking about inheritance tax might feel unpleasant. But, it’s crucial to understand the implications of inheritance tax as a homeowner.

An Inheritance tax is a tax on the estate of someone who’s passed away, ensuring their wealth doesn’t disappear into thin air.

Knowing the rules and exemptions surrounding inheritance tax can help you plan your estate wisely and potentially reduce the tax burden on your loved ones in the future.

Capital Gains Tax (CGT)

Capital gains tax is a tax on the profit earned from the sale of an asset, such as property or investments.

The tax rate depends on the amount of capital gain:

• If the difference between the purchase price and the sale price is less than £31,865, the tax rate is 18%.
• If the difference between the purchase price and the sale price is more than £31,865, the tax rate is 28%.

If you are already a tax resident, you can pay the Capital Gains Tax at the end of the financial year when submitting a self-assessment tax return. Others must pay the tax within 30 days after the purchase.

There are various tax reliefs and exemptions available to reduce the tax amount or completely avoid paying CGT. For instance, if you sell a property with limited square footage where you primarily reside or if you gift your property to your spouse.

Conclusion

There are many benefits to buying a property in the United Kingdom. However, it is crucial to thoroughly review all aspects and costs associated with owning a house, flat, or office in the UK, even the pros of buying a home, before initiating any processes.

Lastly, finding a reputable London house removal company that specialises in property affairs can be of great benefit as it can handle the buying, management, and sale of real estate in the capital. It can also assist you in minimising taxes and charges related to acquiring and maintaining your UK property.