Potential buy to let expat landlords warned to watch out for tax traps

Published:  25 Apr at 6 PM
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Buy to let property in the UK has become a favourite investment for British expats overseas, but tax traps await those who don’t check their liabilities.

Even although the UK’s property market is slowing at the present time, would-be expat investors in buy-to-let can still be confident in its stability as well as satisfactory yields and the fact that property values traditionally double every ten years or so. Unfortunately, it’s not just expat landlords who’re aware of its potential, as the British taxman is watching its every move. For investors entering the UK’s property market, the first tax they encounter is Stamp Duty Land Tax, calculated according to the value of the property and paid out in completion of the deal.

For landlords, stamp duty is simply an interest free loan to the British government and repaid to the owner on the sale of a buy to let house. Purchase price bands apply, starting from zero to £125,000 at three per cent, continuing to £125,001 to £250,000 at five per cent, £250,001 to £925,000 at eight per cent, £925,001 to £1.5 million at 13 per cent and, for the very wealthy, £1.5 million upwards at 15 per cent. Company purchases qualify for special rates, as do some other purchases.

The next burden for landlords and their accountants is the Non-Resident Landlord Scheme, a form of income tax aimed at non-resident British expat landlords living outside the home country. Due on rentals of above £100 a week, either the tenant or, preferably, the letting agent must deduct the tax due and send it to HMRC, remitting the net amount to the landlord.

Expat landlords must file a self-assessment tax return every year, including full details of expenses and rents paid. A personal allowance of £11,850 a year is granted, with the basic tax rate on earnings set at 20 percent, the higher tax rate at 40 per cent and the additional tax rate at 45 per cent.

On selling a buy to let investment property, landlords must pay capital gains tax within 30 days of sale completion. The amount due reflects the purchase price, legal costs, stamp duty, improvement costs and disposal costs including estate agency charges and legal fees. The amount due can be determined by using HMRC’s online calculator.
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