Taxation Issues In The UK

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(This fact sheet is for guidance only and while believed to be accurate, it necessarily contains summary, opinion and generalisation. It should not be relied upon as a basis for entering into transactions without specific professional advice tailored to the precise circumstances of the client. This fact sheet is copyright to GRPC and should not be reproduced for commercial purposes without our permission. However, it may be freely used by way of link to our website or for private purposes.)


Income Tax:


Where a non-UK resident purchases property to let out, the rental payments are subject to UK income tax. Either the tenant or the agent letting out the property on the Landlord’s behalf must withhold 20% of the rent as tax, or the Landlord can elect to receive all the rent tax free initially and then submit a tax return at the end of the tax year.


Most foreign landlords opt for the second option of receiving the rent free of tax and then paying any tax due with their year end tax return.


Fortunately, any landlord may offset expenses against tax. For example, if they have taken out a mortgage on the property, the interest on the loan may be offset against the rent. In addition, any management fees associated with the running of the property and any expenses for repair and maintenance are also deductible. There is also a generous allowance of 10% of the total rent which can be deducted to compensate for the degradation of fittings and fixtures.


Thus, many overseas landlords may legitimately declare a relatively low taxable amount because of the expenses they may lawfully deduct. Furthermore, no tax at all will be payable on the first £6,475 (65,000 Yuan) of net profits and any net profits on the next £37,400 (375000 Yuan) of net income are only taxable at 20%.


There is also the benefit of a double taxation treaty operating between the UK and China, such that any income tax paid in the UK shall count as a credit against any tax liability on the income in China. This is designed to avoid tax being payable twice.


Capital Gains Tax:


Fortunately, individuals who are not resident in the UK are not liable to capital gains tax on the sale of UK property unless they have been officially classed as resident in the UK within the past five years.


Stamp Duty Land Tax (SDLT):


As in nearly every country around the world, SDLT (or its national equivalent) is payable on the purchase of property. In the UK such rates are lower than in other major European countries. The current rates are 1% on any property purchase of £250,000 (2.5M Yuan) or less (or nil for UK resident first time buyers), 3% on transactions between £250,000 (2.5M Yuan) and £500,000 (5M Yuan), 4% between £500,000 (5M Yuan) and £1million (10M Yuan) and 5% over £1 million (10M Yuan).Typically SDLT rates (or the approximate national equivalent) exceed 7% in other European countries, even where the value of the property is low and would, for example, only in incur 1% or 3% rates in the UK.

There are many companies that claim they can avoid SDLT on property purchases for their clients, but we would advise caution. The tax authorities have declared that many of these schemes are in their opinion not effective to avoid the tax and the danger is that after paying a large fee to the tax avoidance company, the tax authorities will discover the transaction and make a claim for the SDLT and any interest arising. As a consultancy, we therefore do not promote such schemes on behalf of others and while our clients are free to explore the use of such schemes, if they so wish, they do so at their own risk and outside the scope of our services.  Clients are most likely to want to examine these schemes where they propose large value purchases in excess of £1M (10M Yuan).


Council Tax:


As in most countries, properties in the UK are subject to annual taxes levied on the property. This is known as Council tax. Council tax rates vary depending on the value of the property but also on the Council area and on the number of occupants in the property. Interestingly, because Council tax rates in some of the Prime Central London areas are set very low by those councils, some owners of properties worth many millions of pounds can pay Council tax amounts that are no more than persons living in far less valuable properties elsewhere.


If a property is purchased for rent, it is almost invariably the tenant who pays the Council tax and the landlord does not have to worry about it. Discounts also operate if the home is not rented out but is not the person’s main residence, as will generally be the case with foreign purchasers.


It is difficult to give an average figure for Council tax, but most properties incur council tax in the range £1000 (10,000 Yuan) to £3000 (30,000 Yuan) per year. This is before any discounts which could halve the figures.


GRPC is not itself a tax consultancy. However, for clients looking for detailed advice on taxation matters, we can put you in touch with experienced tax advisers who can help further.