So what foreign property taxes should you know about? By purchasing property in the UK or renting it out, you’ll be subjected to various taxes. This can include Income Tax, Capital Gains Tax, Stamp Duty Land Tax, and Inheritance Tax.
Income Tax for Foreign Buyers
In the UK, the money you earn from rental income is taxable.
If you’re a non-UK resident, you’ll only be taxed on your UK income, not the income you earn elsewhere. Even if you’re classed as a UK resident for tax purposes, if you spend six months or more abroad, you’ll be classed as a “non-resident landlord.”
You can choose to pay tax on your income in two ways.
- You can earn your rental income in full and then pay tax through a self-assessment tax return.
- You can allow your lettings agent or tenant to deduct the tax automatically.
To take the first option and fill out a self-assessment tax return, you’ll need to apply. You can do so by filling out form NRL1i and sending it to HMRC.
If successful in your application, HMRC will then inform your tenant or letting agent not to deduct tax from your rent.
To get your rent automatically tax deducted, your lettings agent or tenant will deduct tax from the rent at a basic rate (20%) after allowing for any expenses. They will then give you a certificate at the end of the tax year to show how much tax has been deducted.
Stamp Duty Land Tax for Foreign Buyers
When buying property in England and Northern Ireland, you are subject to stamp duty land tax.
This is a tax paid on the purchase price of a property.
A similar system is in place in Scotland and Wales, but the tax has a different name and is paid at a different rate than SDLT. You can learn more by checking out our full guide to Stamp Duty in 2023.
If you’re buying a second property that is not your home, you will be subjected to an additional 3% charge on top of standard stamp duty rates.
However, as a foreign buyer, you’ll also pay an additional 2% surcharge.
This applies to all non-resident transactions, even if you intend to live in the property, regardless of whether you already own a residential property.
You must pay the surcharge when you buy a residential property for £40,000 or higher.
See below for the latest stamp duty land tax rates for foreign buyers in 2023:
SDLT Example for Overseas Landlords
Let’s say you’re a foreign buyer purchasing a UK buy-to-let property in 2023 for £350,000.
You will pay a 2% charge on the first £250,000 and a 7% charge on the remaining £100,000.
This will leave you with a stamp duty tax bill of £12,000.
You’ll then have 14 days to file a stamp duty return and pay the stamp duty fee.