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Investors in UK Property Face Tax Hit By Martin Rimmer, Tax Manager - Asia Pacific, The Fry Group

Expats investing in the UK property market are digesting proposed changes that have potential to add thousands of pounds of stamp duty on future property purchases. Under the proposals, which are scheduled to take effect in April, stamp duty will be increased by three percent for investors buying second homes or investment properties in England, Wales or Northern Ireland (but not Scotland which has devolved legal powers in this area). The revisions would apply an additional 3% to the current graduated rates of Stamp Duty, so that a buyer who is caught by these rules would pay at 3% on the first GBP 125,000, 5% on the next GBP 125,000 and 8% on the balance up to GBP 925,000. A rate of 13% would be charged on the balance between GBP 925,000 to GBP 1.5 million with a top rate of 15% on the balance above GBP 1.5 million. So a second property costing GBP 650,000 which completes on 31st March 2016 would attract Stamp Duty of GBP 22,500. If it is completed on 1st April 2016 the Stamp Duty would be GBP 42,000. The kicker for overseas investors is that the UK tax authorities, in calculating your tax, will take into account any residential property you own anywhere in the world. So if you are living in Singapore investing in the UK property market (perhaps for your retirement) if you already own at least one residential property anywhere – the increased tax rate will apply to you. The news gets worse before it gets better. The changes will also apply if you are a joint owner of a residential property anywhere around the world. For that matter any property owned by a spouse or civil partner also qualifies. Even property held in the name of children under majority age will count as yours for these purposes. And trusts or companies will also need to pay up if they invest in UK residential property – in fact they will pay the higher rates from their first investment property – although the UK is looking at exempting purchasers (be they trusts, funds or individuals) buying more than 15 properties. The new rules also threaten to add more complexity to an already mindboggling UK property tax system. For example if you buy a second home in the UK before selling your primary residence you will be eligible to pay the tax. You will only be able to claim a refund if you sell the current home within 18 months. The one concession they make is that you do not have to pay the additional rates of Stamp Duty if you are replacing your main home. But even there we find a problem. If the proposals are adopted we end up with a situation where there are four different interpretations of the concept of a ‘main home’ as far as UK tax authorities are concerned. While a rush of transactions might be expected before the 1st April 2016 deadline - over the longer term the overseas investor, or the expat looking to buy property to retire to in the UK, will need to consider their options very carefully.

The Fry Group has been providing British expatriates with tax-led financial advice since 1898. advice@thefrygoup.sg • Tel: +65 6225 0825 • www.thefrygroupsg.com The information in this article aims to provide information. However, this is not intended to form professional advice nor should it be relied upon as such and before taking any particular action, specific and personal advice should be obtained. The Fry Group (Singapore) Pte Ltd. Authorised to act as a financial adviser by the Monetary Authority of Singapore (MAS). License number FA100057-1.

March 2016  
March 2016  
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