12 & 17 Pepper St, Docklands, London, E14 9QY
Tel: 0207 519 4900
Fax: 020 7519 4910
clients@sophisticatedmortgages.com
It is important to be aware that owning real estate in the UK can have tax implications – even if you do not live in the UK. The use of a tailored mortgage product can have tax benefits in addition to its other attractions.
The right solution for you will depend on your particular circumstances. In particular, your tax position in the UK will depend on whether or not you are resident and/or domiciled here .
Click here to find out more about the rules regarding residence and domicile in the UK
UK domicile:
If you live in the UK and are also domiciled here then in most cases it will make sense for you to hold property in your own name. However, you still need to consider how the property is to be owned where there are two or more purchasers. You will also want to know whether your property qualifies for exemption from capital gains tax, particularly where you own more than one property.
Having said that, it is often possible to save a significant amount of inheritance tax in
future; for example, by ensuring that you have a tax efficient Will. Furthermore, following
the UK Budget in March 2006, careful Will planning can help to avoid a 6% charge to IHT every
10 years and other charges in between on money left to dependents.
If you are purchasing property for investment then you need to be aware of your income tax
obligation on any rent received. Certain expenses will be deductible for tax purposes, including
mortgage interest.
Non-UK domicile:
If you are UK resident but non-UK domiciled then you may want to consider an offshore mortgage, which may enable you to pay interest out of offshore income, without remitting it to the UK which would make the income taxable.
A mortgage should also help to reduce the value of your property for inheritance tax purposes – UK property owned directly by anyone is subject to inheritance tax on death and on certain other occasions at up to 40%.
An offshore trust and company structure may also be effective for inheritance tax and capital gains tax purposes. However, care needs to be taken to avoid income tax pitfalls such as "benefit in kind" and "pre-owned asset" charges.
An offshore structure may be particularly suitable for ownership of investment property and can help to reduce the tax rate on rental income from 40% to 22%.
UK Domicile (Eg British Expatriates):
If you are living abroad but have not left the UK to settle in a particular country permanently,
you are likely to remain UK domiciled and subject to inheritance tax on your world-wide assets,
including any UK property. Nevertheless, an offshore company may still be worthwhile to reduce
the rate of income tax on net rental income. Again, mortgage interest should be deductible
from rent for tax purposes. Will and co-ownership planning is also likely to be important.
Careful planning is recommended before returning to the UK to maximise capital gains tax
benefits and to ensure any ownership structure is appropriate.
Non UK Domicile:
If you are in the happy position of being both non-UK resident and non-UK domiciled, then
fairly straightforward offshore and mortgage planning can combine to make your enjoyment
of an investment in UK property extremely tax efficient. Do not forget any local taxes where
you live though!
To make an enquiry please fill out our online form or alternatively call us on 020 7519 4999.