Updates On Buying And Holding Property In The UK
If you don’t know by now, the SDLT or Stamp Duty Land Tax was changed recently. Sounds like boring stuff right? But don’t be turned off by the seemingly technical nature of this breaking news, since these changes will impact investors around the country.
Among the changes introduced were jacked up stamp duty rates. Under the new rules, property bought for £925,000 will now have 10 per cent stamp duty rate, while properties with a price exceeding £1.5 million will be taxed at a whopping 12 per cent.
Analysts expect London property investors to be hardest hit with the changes, since it has a high percentage of properties being bought and sold at the identified prices.
Aside from these new stamp duty rates, UK property investors are also exposed to three other tax charges such as: Income Tax, Capital Gains Tax, and Inheritance Tax.
New rules dictate that landlords of rental properties will be charged with a maximum of 45 per cent income tax, once their UK sourced income reaches £150,000 annually. Capital growth on properties sold is charged either 18 per cent or 28 per cent. While, all properties located in the UK are charged with 40 per cent inheritance tax upon death of the owner.
It doesn’t take a genius to see that these tax rules definitely eat out a chunk of any potential profit you’re expecting from property investment, that’s why it’s about time to rethink how to buy and hold property this 2015.
Banking and lending
Some people turn to the tried and tested method of buying properties in the UK to get some tax relief, and this solution is no other than buying houses with a mortgage.
UK tax rules allow some relief from a landlord’s income tax by offsetting it with his cost of borrowing. In some special circumstances, any outstanding debt for a UK property may also be deducted from UK Inheritance Tax in case the debt holder passes away.
Offshore trust and offshore company
Citizens of UK who live abroad, on the other hand, solicit the help of offshore trusts and offshore companies to structure their assets in a tax-efficient way.
Offshore trusts rose to popularity with many UK citizens who live abroad, because of their efficiency in succession and inheritance planning. Unlike other services, they give their clients a high level of control on the timeliness and manner of passing on property from one generation to another.
As I’ve mentioned earlier, UK Inheritance Tax is currently at 40 per cent, which is steep. So heirs are using the amount they receive from high-value insurance policies to pay off this out-of-this world charge.
As you can see, there are no fixed rules for property investment in 2015. How you go about the tax rules depends on how you’re buying and what you’re trying to achieve from your investment. What’s evident, however, is that planning and structuring your property are becoming increasingly important as the UK government seeks to squeeze more tax out of the housing market. See you in the next blog post!