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The UK property market has always attracted investment from overseas, especially in London and the South East of England.

The non-resident landlord route is a popular investment option for foreign owners, both for long-term investment and personal enjoyment. There are some factors to consider but with Arnold Hill & Co on your side, we can help to ensure a smooth process.

The UK Tax System

The UK taxation system, as it relates to non-resident owners of UK real estate, underwent significant changes in the years prior to 2019. The tax rules have been widened to bring those owning UK land and property within the scope of UK tax to a much greater extent than before.

The way UK tax applies to a non-resident landlord will depend whether it is a person or a business entity that owns the land. For example, a corporate owner will be subject to the UK corporation tax system, while an individual (or partnership of individuals) or a trust will be subject to Income Tax and Capital Gains Tax. 

Corporation Tax is charged at a rate of 25% on profits arising from the letting or sale of UK property. Income Tax and Capital Gains Tax rates can be more complicated, particularly if you have other UK income but our advisers at Arnold Hill & Co can help to walk you through it. The top rate of Income Tax is currently 45%, while Capital Gains Tax will be charged at 28%.

Another thing to consider is that some overseas organisations may not have a clear legal equivalent in UK law (certain foundations, for example) and so whether or not such they are subject to Corporation Tax or Income Tax/Capital Gains Tax will depend on the individual case and professional advice will be needed.

It’s important to make sure you meet tax compliance obligations as there are financial penalties for failure to comply with the rules. Persistent failure may result in the tenants or letting agent being required to withhold tax on payments (see below).

Abuse of the UK Tax System

The UK Treasury is, of course, concerned about potential abuse of the UK tax system through the use of non-resident landlords. This means that, in addition to the normal tax compliance process, there are rules that can require tenants in UK property owned by non-UK persons to withhold tax from rent payments and record this with HMRC. 

However, this requirement can be removed by applying to HMRC, providing details of the owner, the property and the tenant, and offering assurance that the landlord has no outstanding UK tax obligations and will continue to comply with future tax obligations.

Regardless of whether the landlord is subject to Corporation Tax or Income/Capital Gains Tax, they must pay tax on any profits which arise as a result of letting the property. They will also have to pay tax on any capital gains associated with the property (e.g. on the sale of all or part of the property). 

The landlord will be required to make annual returns of income and capital gains under the appropriate taxation system, before paying any tax on the appropriate taxation date.

This guidance from Gov.uk offers some more information on this scheme, which includes:

• What the Non-Resident Landlords Scheme (NRLS) is
• Who is classed as a non-resident landlord
• The rules regarding joint ownership by spouses or civil partners
• How letting agents and tenants know if a landlord has a ‘unusual place of abode’ outside of the UK
• How to calculate and record the rental income you receive.

Land Transaction Taxes

Acquisition of property in the UK attracts a capital tax (payable by the buyer), which is based on the cost of the property, its nature (whether it is residential, non-residential or mixed use) and where it is located. 

Each country within the UK has their own versions of this tax which, while all very similar, can have important differences. In England and Northern Ireland, Stamp Duty Land Tax is applied, while Scotland and Wales apply their own (different) Land Transaction Taxes. The highest marginal rates of tax on residential property are 19% in England and Northern Ireland, 18% in Scotland, and 16% in Wales. The rates on commercial and mixed-use property are lower, with the highest marginal rates in England, Northern Ireland and Scotland being 5%, and 6% in Wales.

Annual Tax on Property Value

Where UK residential property is held by ‘non-natural persons’ (any legal person that is not an individual), that person will be liable for Annual Tax on Enveloped Dwellings. 

This is an annual tax based on the value of the residential property and there are a number of exemptions. These include an exemption for properties let on a commercial basis to unconnected parties. 

The tax is charged at different levels for properties with values lying in certain bands, with the highest tax, for the year commencing on 1 April 2025, being £292,350 (for properties worth more than £20million).

VAT

Investors who buy, sell and let existing residential property generally have little to be concerned about regarding UK VAT. The purchase, sale and letting of these properties will be exempt from VAT and no VAT will be recoverable in respect of costs incurred. 

Other cases, however, may present more complicated VAT positions. For example, commercial property may be exempt or could be subject to VAT at the election of the owner, while the VAT position of construction and development of residential property and the conversion of non-residential property into residential will vary with each case.

Why invest in the UK property market from abroad?

Think investing in UK property from overseas is the right move for you? Our Corporation Tax Partner here at Arnold Hill & Co, Michael Haig says it could prove fruitful. He says:

“Investing in UK property is a great long-term move with solid rental returns and the chance of strong capital growth. The tax rules for non-resident landlords have become stricter lately, but at Arnold Hill we are experienced at helping our clients handle their responsibilities smoothly.”

Keen to learn more?

If you’re ready to invest in the UK residential property market from abroad, do not hesitate to contact our team. We’re on hand to guide you through the process – simply call us on 020 7306 9100 or email us at info@arnoldhill.co.uk

About Arnold Hill & Co LLP 

Arnold Hill & Co LLP is an accountancy and tax firm who have been delivering tailored accountancy services for over a century. Based in the heart of London, the firm is built on strong, lasting relationships and combine tradition with a forward thinking approach to meet the evolving needs of clients, both across the UK and internationally. The firm advise a range of clients ranging from UHNWI’s, family offices and entrepreneurs to growing businesses and multinational groups.

Michael Haig - Partner