What tax do you pay when buying a house in the UK

17 Aug 2021, 55 mins ago

What tax do you pay when buying a house in the UK

Tax on Acquisition: When purchasing a property, Stamp Duty Land Tax (SDLT) is charged on the purchase price in bands depending on the value of the property.

The rates from 1 October 2021 are as follows:

Value Rate
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
Over £1,500,000 12%

NB: The government introduced temporary reduced rates of SDLT from 8 July 2020 to 30 September 2021 to stimulate the property market during the Coronavirus pandemic.

If you are purchasing an additional property (i.e. you own another property anywhere in the world) then an additional 3% is added to the rates set out above. If you are not a UK resident, then a further 2% is added as well. This means that rates of up to 17% can apply.

Tax during Ownership

The only tax charged on owner-occupied residential property is Council Tax. This is levied by the local authority where the property is situated, and is based on the value of the property.

Tax on Sale

When the property is disposed of, Capital Gains Tax (CGT) may be payable on the increase in value of the property from the date of acquisition to the date of sale, less allowable expenses and the annual CGT exemption (which is currently £12,300). CGT is charged at 18% or 28%, depending on the level of the owner’s income and gains in the year of sale.

Gains on the disposal of a person’s only or main residence are usually exempt from CGT (known as principal private residence relief or PPR).

Tax on Succession

The property will potentially be subject to Inheritance Tax (IHT) in the event of the owner passing away. IHT is payable at 40% to the extent the value of the property (and any other chargeable assets) exceeds the nil-rate band (which is currently £325,000 per person) and subject to any other available exemptions and allowances. Debts secured against the property are generally deductible when considering the taxable value.

Other Issues

If you do own property in the UK, you should ensure you have an English will to deal with the property (and any other UK assets). In the absence of a valid will, statutory rules known as the intestacy rules will apply. These rules may well not correspond with your wishes as to what should happen to your property in the event of your passing.

Tax to pay when buying a house in the UK

This blog is just a very brief summary of some of the key issues to be aware of when acquiring a residential property in England in your own name. The tax issues where residential property is acquired through a company or trust, and where commercial and investment property is acquired, are different.

The UK tax system is complicated and it is essential that proper detailed advice is obtained.

How can we help?

Gherson can help with a wide range of tax and estate planning matters. We also have extensive experience of working with HMRC and dealing with HMRC investigations. Please do not hesitate to contact us or send us an e-mail.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

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