Investing in UK Real Estate

Investing in UK Real Estate: Tax aspects to consider over a property lifecycle.

If you’re thinking of investing in UK Real Estate, or are an existing investor, you need to consider the structure and tax consequences of any property transactions you will be entering into

There are many points to review from a UK tax perspective. We have produced the lifecycle below as guidance only. Tax advice should reflect your personal circumstances.

At Crowe UK, we have significant experience in advising new and seasoned international investors on their UK Real Estate ventures.

1.    Vehicle for entering the UK market

Registration requirements.

Financing – debt, equity, or a combination of both.

2.    Property purchase

• Commercial or residential - Stamp Duty Land Tax or equivalent devolved taxes will be payable on the acquisition price, which can reach levels of up to 17%.
• Intention of property use – long term investment to generate rental income or develop and sell. Treatment generally determines treatment and disclosure in UK tax returns.
• Residential property – consideration of the Annual Tax on Enveloped Dwellings rules.
• Commercial property – availability of capital allowances and the structures and buildings allowance on the purchase price of the property.
• Value Added Tax – consideration of whether this tax is due on the acquisition price of the property, and if so, if it can be recovered.
• UK inheritance tax – consideration of whether the acquisition will fall within the estate of a non-UK domiciled individual.

3.    Ongoing matters

• Interest payable – deductibility for tax purposes. Complex rules to consider – Transfer Pricing, Corporate Interest Restriction, Hybrid mismatches, and various others.
• Appropriation from long term investment to development and vice versa – possible crystallisation of a dry tax charge.
• Interest payments – consideration of the requirement to withhold tax at source.
• Rental income earned – for properties held as an investment, consideration of tax suffered at source.
• Value Added Tax – consideration of recoverability of any tax suffered on costs incurred.
• Compliance obligations – annual accounts, tax return and company secretarial filings.

4.    Property sale

• Gains on disposal of a property may be subject to UK capital gains tax, corporation tax or non-resident capital gains tax, depending on the vehicle used to purchase the property.
• Tax rates on the resulting gain range from 0% (if exempt) to 28%. The UK Corporation tax rate will be increasing to a maximum rate of 25% from April 2023.
• Value Added Tax – whether this tax is due on the sale of the property.
• Consideration of how to extract profits to the shareholders, and the tax implications for those shareholders.
• Compliance matters relating to winding down vehicle to exit UK Real Estate market, or entering into another UK property venture.

Existing UK Real Estate investors may already be familiar with the above tax consequences and vehicles available. The question here is whether your existing group structure is still fit for purpose. In particular, you should consider whether offshore envelopes are appropriate in light of the Economic Substance Rules, and whether ongoing changes to the UK tax regime have reversed previously advantageous positions.