What move should overseas investors make next in UK property?
Housing-Market / UK Housing May 27, 2015 - 04:23 PM GMTBy: Submissions
Peter Scully writes: From 6 April 2015 there will no longer be tax advantages for non-UK residents who invest in the UK residential property market.
These changes have seen Capital Gains Tax (CGT) exemption being removed along with restricted access to Private Residence Relief (PRR) as well as the potential removal of personal allowance for income tax.
Overseas investors may now benefit from different types of property investment as opposed to directly holding UK residential property which can offer them a similar level of exposure as well as a good opportunity for investment that comes with a better tax efficiency.
The new tax changes are having an impact on those overseas investors who own a UK property and this is through the removal of Capital Gains Tax exemption which came into effect in April and any gains from April onwards will be charged at a rate of up to 28%. They have seen their Private Residence Relief restricted which means that should they plan to claim PRR on a property that they own in the UK they would have had to live in that property for more than 90 days per tax year of ownership. There is a possibility that income tax could be removed as it is under review which means that it could be restricted for non-residents in the future.
Overseas investors also have to consider inheritance tax as there is a belief that estates that belonged to UK domiciled clients are susceptible to UK inheritance tax; however, this is not true as most assets in the UK, including those held by non-domiciled owners will be charged at a standard rate of 40% if above £325,000.
However, there are other possible investments that can be considered. Should an investor have an interest in investing in the UK property market but they have a concern regarding tax implications then they could have a property fund as part of their portfolio. This will result in the investor owning a share in the fund as opposed to owning the property which would make it easier to sell. There is also the bonus of investment funds being efficient when it comes to capital gains tax if the investor has been a non-resident for over five years.
Overseas investors could also invest in an offshore bond, building an investment portfolio within an offshore bond wrapper which can help avoid some taxations problems. Most income and all gains from bonds are based on a gross roll up which means that tax is only payable when the bond holding is encashed.
There is another key advantage to offshore bonds because there is no income generated, which means nothing has to be declared to HMRC so there is no administrative problem when it comes to making assets known on the annual tax return.
The taxations changes could result in a decrease in direct investment from overseas investors in the UK residential property market. Most portfolios will see some advantages whilst investing in a property fund via an offshore bond can help to reduce the burden of tax. For those who currently invest in a UK residential property should check their holdings to see if the new tax changes will affect them.
The Overseas Investor are international property specialists, with a large portfolio of luxury investment properties around the world, as well as student accommodation investments in the UK.
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