Thinking of investing in UK real estate?

Thinking of investing in UK real estate?

Britain’s property market has traditionally been considered a stable and practical place to invest, whether you are buying rental properties, a non-UK resident investor, or you are looking to realise a profit by buying residential properties for refurbishment and re-sale.

Regardless of the intentions and individual situations, there are a number of aspects to consider when making an investment in UK real estate. In addition, individuals and companies investing in UK real estate have a number of tax compliance obligations, which they have to meet each year.

Before you buy, you should think about how you wish to own the property i.e. individually or through a company, as there are different tax rules, which apply.

Buy to let

Individual investors purchasing a buy-to-let property in addition to their existing home will be likely to come within the scope of the higher rate of Stamp Duty Land Tax (SDLT), which applies to the purchase of “additional residential properties”. This rate is 3% higher than the equivalent standard rate of SDLT for someone who is buying a single residential property, for instance, moving to a new home.

This higher rate will also apply to all purchases of residential properties by companies, irrespective of whether the company is a UK or a non-UK company.

There is also a higher 15% rate of SDLT, which can apply in cases where a company is buying a residential property worth more than £500,000, although there are certain exemptions from this charge if the property is being used as part of a genuine property business, such as property rental and property development.

Mortgage stress tests

If you are thinking of financing the purchase through borrowing, changes to mortgage stress tests introduced by the Prudential Regulation Authority also need to be considered – particularly for existing investors who already manage a large portfolio of buy-to-let properties.

Following the introduction of these rules, mortgage lenders must carefully assess the ability of landlords to repay the debt before they are able to offer them a mortgage. These changes mean that portfolio landlords need to provide extensive tax and financial information to lenders in order to meet the requirements of so-called ‘stress tests’.

Rental income received by an investor will also be subject to UK tax.  If the property is owned by a UK resident company then corporation tax will apply, otherwise, there will be an income tax charge. It should be possible to claim certain deductions against rental profits for the cost of renewing worn or damaged items, based on actual expenditure. Other expenses associated with letting a property are normally tax deductible, and this includes insurance and management fees.

Mortgage interest tax relief

Interest on a loan which is taken out to buy a property can also be tax deductible. However, individual landlords need to be aware of ongoing changes to mortgage interest tax relief.

First introduced in April 2017 in respect of residential properties owned by individuals, these changes mean that interest will not be deductible in full against rental income but will be given as a reduction in the tax due ( only at the basic rate of 20%).

If you are thinking about owning UK residential property through a UK or non-UK company, there are also ongoing costs to be aware of.

Annual Tax on Enveloped Dwellings

If the property is worth more than £500,000 then the Annual Tax on Enveloped Dwellings (“ATED”) will apply. This is an annual charge which is payable by companies holding residential property unless the property is used as part of a genuine property business.

If the company is letting out the property on the open market then it should be possible to claim relief from the ATED charge, although it should be borne in mind that annual filing of a return with HMRC is still required.

When deciding whether to invest in UK real estate, it is important to take account of all of the initial transaction costs, including conveyancing and surveyors’ fees, SDLT on the purchase, as well as the ongoing costs of ATED and Council Tax or Business Rates plus the cost of borrowing to fund the purchase.

How can we help?  

Despite the various tax challenges that investors face in today’s property market, investment in real estate remains incredibly popular in the UK and can still be very rewarding if the right advice is sought ahead of time.

Our team is committed to providing outstanding service and support to build long-term relationships with our clients that are mutually beneficial. If you are considering investing in property and need expert advice contact Wilder Coe Ltd to see how we can help you.


Pauline Hudd
Partner at Wilder Coe
Pauline provides clients with practical advice and pragmatic solutions in relation to all aspects of stamp taxes. Her wide-ranging experience on corporate and real estate transactions means that she gives bespoke advice tailored to the needs of clients, whether they are major multi-nationals, financial institutions or individual investors.