Tax Considerations when investing in UK Property

There are important tax implications to be considered, whenever acquiring property in the UK. Those implications vary greatly depending on:

1. the purpose of the acquisition (for example, whether a property is acquired as an investment or development opportunity or aa family home); and
2. how the property is acquired (directly or through a corporate entity – look out for our upcoming article on demystifying corporate wrappers, scheduled for release on 3 December 2025).

When evaluating a potential acquisition, it is important not only to consider the tax issues arising on acquisition but the issues that could arise throughout the life cycle of the property and, ultimately, on its disposal (so far as can be predicted based on current tax laws). 

This article gives an overview of some of the issues that can arise for a non-UK tax resident person purchasing property in the UK.

Evaluating an acquisition – some general tax considerations

If acquiring a UK property via a corporate wrapper (namely acquiring the shares in the property holding entity), it is important to remember that you are also acquiring the tax history of that entity. The company accounts, if any, and the records relating to the tax affairs of the company should be scrutinised carefully, but the following issues need particular attention:

• Chargeable gains 

  The term "pregnant gain" (or "inherent gain") is often used, to refer to any gain in value relating to a property held in a corporate wrapper, which has already accrued at the time of acquisition, but is unrealised. 

  As and when the property is disposed of by the owning company, it would be liable to pay tax on the gain in value. 

  Due diligence should be undertaken, prior to any acquisition, to establish the base cost of the asset and any allowable deductions, to determine what tax liability would arise on a disposal of the asset at a later date. 

• Categorisation of property as investment or trading stock

  A property held by a company may be treated as investment or trading stock depending on the purpose for which the property was originally acquired and also whether that purpose has changed over time. 

  For example, a property acquired by a company for development and re-sale would typically be treated as trading stock, as the intention of the company is to acquire land or property for building or re-development in order to sell at a profit. 

  Alternatively, property may be acquired by a company as a long-term investment, in order to benefit from rental proceeds, in which case it would generally be treated as investment stock. 

  The purchaser of a property in a corporate wrapper needs to be careful that the purpose for which the property is currently held accords with the purchaser's intentions, if they are to avoid any unexpected tax charges. 

• Offshore versus onshore structure 

  A significant proportion of UK property is held through non-UK incorporated companies and this may originally have been motivated by UK tax issues which may no longer be relevant on a new acquisition. 

  Over time, the benefits of holding UK property in an offshore structure have been reduced. For example, it was previously commonplace for a non-UK domiciled individual to acquire any UK residential property through a non-UK SPV, for inheritance tax reasons. This approach is no longer effective to avoid UK inheritance tax; however, many such structures remain in existence. 

  On acquisition of an enveloped property, it is important to confirm whether the company owning the property is established in the UK or elsewhere, together with its tax residence status.

  A company which has historically been resident outside the UK may be treated as becoming UK resident following its acquisition, if this results in the company being managed from the UK.

Tax Implications of acquisition

One of the most significant acquisition costs for purchasers of UK property located in England is stamp duty land tax ("SDLT").  The top rate of SDLT payable can be as high as 19% of the consideration paid for a UK residential property by a non-UK tax resident purchaser. The rates would be lower in many cases, particularly in relation to commercial or mixed-use properties. However, there will certainly be an SDLT cost, for all types of UK property acquired directly (i.e., not through a corporate wrapper). Different rules apply for property in Wales and Scotland. 

However, if the property asset is held through a corporate wrapper, the situation is different. If the company holding the property is a UK company and the shares in that company are acquired, rather than the property itself, then the purchaser will not be liable to pay SDLT and will instead pay stamp duty at a rate of 0.5% on the consideration paid for the shares. If the company is a non-UK company, then no SDLT or stamp duty is usually payable on the purchase of the shares. 

This can result in a significant tax saving for a purchaser, however there may be other implications, in relation to residential property which is being acquired for the personal use of anyone connected with the company. In that situation, the Annual Tax on Enveloped Dwellings ("ATED") would typically be payable, where any property valued over £500k is held by a company.

Tax during ownership of property

Again, the tax treatment will differ depending on the use of the property. As mentioned above, if a residential property valued at over £500k is occupied by a connected person, the owning company may be subject to ATED which is calculated by reference to the value of the property and is payable on an annual basis. 

Relief from ATED should be available in cases where residential property is held within a company but is used exclusively for the purposes of a property business (which could be either a property rental business, or property development).

Although ATED generally discourages the holding of UK residential property for non-business purposes, through a company, a purchaser may want to consider the company's likely ATED liability over the period of their intended occupation of the property against the potential SDLT saving which could be available, in relation to a property which is already enveloped. SDLT is a significant transaction cost and if, for example, a purchaser is not intending to be in occupation of the UK property in the long-term, it is possible in some cases that the ATED liability resulting from a period of occupation may be outweighed by the SDLT saving. 

However, there are various other adverse tax implications which may arise, where a residential property held through a corporate wrapper is occupied by persons connected with the owning company (i.e. directors or shareholders). For example, any occupation of the property on a rent-free basis could in some cases be treated as a benefit provided by the company to the relevant individual, which could be subject to income tax. Each acquisition must be considered on a case-by-case basis.

Disposal

Disposing of UK property, whether by a sale or gift, or in some cases by way of a "deemed" disposal for tax purposes, can result in tax consequences, which will depend primarily on the tax status of the property owner (whether an individual, or a corporate entity) and the use to which the property has been put. 

For a non-UK tax resident individual or company, any actual or deemed net sale proceeds may be subject to non-resident capital gains tax (for individuals) or corporation tax (for companies). 

Relief from capital gains tax may be available on any disposal, where a residential property has been used as the owner's main residence throughout the whole, or part of their period of ownership. However, main residence relief is only available to individuals and would therefore not be available where a residence is held in a corporate wrapper. Main residence relief is also subject to additional restrictions, for non-UK residents, in cases where the owner has spent only limited periods in the UK.

UK Budget 2025

It should be noted that some of the UK tax considerations mentioned above may be affected by the UK Budget which is scheduled to be delivered on 26 November 2025. In particular, it is possible that the rules relating to SDLT on acquisitions and capital gains tax on disposals may be amended and it will be necessary therefore, for the position to be reviewed following the Budget.

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