What taxes do overseas investors have to consider when investing in UK property?
This is an ideal time for overseas investors to buy UK property. House prices are increasing, borrowing is getting cheaper, and the process of buying and selling is becoming easier – the ideal situation for investors.
However, to do so successfully it is important to know about the costs that will be involved. One of the most important things to know is what tax you will have to pay, and when you will need to pay it.
We have gathered the basic tax information overseas investors need here, although we always recommend speaking to an independent financial advisor when investing to ensure that you are getting tax advice that suits your situation.
Capital gains tax
Whether you are investing for the long- or short-term, at some point you will want to sell your property. If you’ve bought in the right location – such as close to a masterplan regeneration area – your property will have increased in value during the time you have owned it.
When you do, you will pay Capital Gains Tax (CGT). The amount you pay is a percentage of the difference between the initial purchase price and the sales price – the ‘capital gain’.
All sellers must pay it if they make a profit, including overseas investors. Your first ￡3,000 is tax-free (or ￡1,500 if the property is owned by a Trust), but after that the rate is currently as follows:
There were fears that this would be raised by the new government. However, the Chancellor confirmed in the October 2024 Budget that this rate would stay the same.
Income tax for overseas property investors
UK buy-to-let property for sale is such a valuable investment because it comes with two different types of income. First the capital gains mentioned previously. Second, the monthly rental income.
Rental income counts like any other monthly income and is subject to income tax. This is a compulsory tax and the rate depends on how much money you earn from rent each year:
Overseas investors will need to join the Non-Resident Landlord Scheme to pay this tax. Under the scheme, letting agents will deduct your tax from your rental income, then pay your tax directly to HMRC.
The scheme is in place to ensure that money does not leave the UK before it is taxed properly. It is a mandatory requirement and your chosen lettings and management agent should ensure that you are registered at the start of a tenancy.
Stamp Duty
Stamp Duty Land Tax (SDLT) is paid when you purchase a property, and the amount is determined by the value of the property. It is a one-off charge and is not paid every year, unlike annual property taxes in the USA, for example.
If you buy property off-plan, you will pay SDLT when you complete the purchase following the end of construction, not when you reserve and exchange at the start of the process.
The most recent government budget confirmed that Stamp Duty rates are set to change. Until the 31st March 2025 they are:
From 1st April 2025 onwards, the rates will be as follows for buy to let investors, including the additional surcharge for the investment being a second property:
Overseas investors have to pay an additional 2% on top of those rates since a change to the law in 2021.
That means the cost of investing in UK property will increase from April 2025 onwards. However, that does not mean that investing is any less profitable. In fact, the rates going up confirms that the government believes property values are set to increase in the next four years.
Read our recent article to learn what Stamp Duty costs means for you in practical terms here.
Council Tax
Council Tax is a compulsory charge on residential properties which is used to pay for essential local services.
In general, it is not likely that you will have to pay Council Tax as an overseas investor. If you choose the right location to invest, you will have a tenant at all times and not experience void periods. When you have a tenant, they will pay Council Tax unless you choose to pay it and this is specified in the contract.
It is only when the property lies empty that you will need to pay Council Tax. If you do experience this, the cost will be somewhere between ￡100 and ￡200 per month in most cases.
The best way to ensure you don’t have to pay Council Tax on your investment is to choose a busy rental market and appoint a lettings and management agent who will make sure that there is always a tenant ready to move in.
If you require a lettings and management agent, our partnered company Northbank Residential, offers fully-managed packages for UK based and overseas investors and landlords.
Inheritance Tax
Inheritance Tax is a tax paid on the estate of someone who has died. As an overseas property investor, you will only be liable for tax on any assets in the UK worth more than ￡325,000.
On anything above that, you will pay 40% inheritance tax unless you leave the property to your spouse, civil partner, charity or community amateur sports club.
If instead you would rather give away your home to your children or grandchildren, the threshold for 0% inheritance tax rises to ￡500,000. If the property or properties (your ‘estate’) is valued higher than that, you will pay the 40% rate on the part of the estate over the threshold as normal.
As with all types of tax, we highly recommend that you speak to an independent tax advisor before investing to ensure that you have information specific to your unique situation.
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