Corporation tax
The standard rate of corporation tax in the UK is 30%. This will apply to a UK incorporated company holding property in the UK, or a non-UK resident company trading in the UK through a branch or agency. This tax is calculated and returns are filed on an accounting year basis.
Income tax
A non-UK resident company holding UK property will be subject to income tax at the basic rate of 22%. Prima facie, withholding tax of 22% is applied to rents paid offshore although it is possible to receive rental payments gross of withholding tax under the Non Resident Landlord (NRL) scheme. This provides a cash flow advantage in return for the limited administrative burden and is therefore common practice. This tax is calculated on a fiscal year basis (i.e. for the year ended 5 April).
Capital gains
Capital gains for a UK incorporated company or non-resident company carrying on a trade in the UK through a branch or agency are subject to corporation tax at the standard rate of 30%. Non-resident companies disposing of UK property are not generally subject to UK tax on capital gains provided the company does not trade in the UK, is centrally managed and controlled outside the UK and is not holding property with the sole or main intention of realising a capital gain (i.e. the property is held as a rental investment). This exemption from tax on capital gains means that most non-UK investors hold UK property through non-resident companies formed offshore (e.g. in jurisdictions such as Luxembourg).
Property transfer tax
Land purchased in the UK is subject to Stamp Duty Land Tax (SDLT), charged on the VAT-inclusive purchase price at the following rates:
- nil band – non residential up to £150,000, residential up to £120,000
- above nil band to £250,000 charged at 1%
- £250,000 to £500,000 taxed at 3%
- above £500K taxed at 4%
In certain disadvantaged areas SDLT may be reduced to 0% on residential property with a purchase price of up to £150k.
The purchase of shares in a UK property holding company is subject to stamp duty at 0.5% on the share price. Purchase of shares in a non-UK company (or non-UK unit trust) owning UK property is not subject to SDLT in the UK.
VAT
VAT registration is compulsory if UK taxable supplies exceed the following limits (applicable from 1 April 2005):
- £60,000 in the previous 12 months; or
- Expectation to reach £60,000 in next 30 days
These limits apply to both UK and non-UK resident companies. Standard rated supplies are subject to VAT at 17.5%. However, the construction of new dwellings and certain property developments qualifying for charitable or certain residential purposes may be ‘zero rated’ (i.e. 0% VAT applies). Works in relation to certain conversions of non-residential properties into residential properties may be subject to VAT at the reduced rate of 5%. The sale or leasing of such conversions may be zero rated.
The above is for general information purposes only. It is not intended to be comprehensive or to provide any specific tax advice.