Maximising Tax Breaks on UK Property
By Stephanie Chan
Brits have always had a fascination with property, and it’s a fascination that continues for those who live abroad. A large amount of British expats will own property back in the UK, perhaps by hanging onto their former family home for their return, buying property for their children or as a longer term investment.
As the scope and complexity of HM Revenue & Customs’ requirements grow and develop, making use of the permitted reliefs on property investments is one way UK citizens living overseas can ensure they’re maximising their tax benefits. Here are five examples:
1. Properties purchased to let out as furnished holiday accommodation (FHL) attract business tax reliefs including using the profits as contributions to a tax allowable pension. Plus, unlike buy-to-lets, you can stay in these properties when you are visiting the UK.
2. Bed and Breakfasts (B&Bs) are also treated as businesses with business property reliefs, such as lower Income Taxes and Inheritance Taxes. And, as with FHLs, you can stay in the B&B when visiting the UK if it is run as a business with a manager during your absence abroad.
3. University-located property: With sons or daughters going to UK university, any accommodation you buy there in your child’s name will attract lower stamp duty if the value is under £500,000 using the ‘first time buyer’ relief. Also, rental income on extra bedrooms gets ‘rent-a-room’ tax relief up to £7,500 a year – and on sale, the property may be exempt from Capital Gains Tax.
4. Owning a farmhouse and farmland in the UK or Europe attracts many tax reliefs as it is treated as a business. You can appoint a farm manager to run the farm in your absence abroad and, as with FHLs, you then have somewhere to stay when in the UK or Europe. A farm and farmhouse can also benefit from 100% Inheritance Tax relief.
5. Student accommodation: If you invest in halls of residence for higher education students, you will pay a reduced commercial rate of Stamp Duty – and halls of residence can provide you with a good source of regular income.
You can also access a number of other property-related tax benefits such as multiple dwellings purchase relief. With the UK’s strong tradition of investing in property as a way of providing for the future, ensuring you do so in a tax-efficient way makes sense and can reap significant benefits when done wisely.
It’s always important to note that everyone’s situation and portfolio is different. If some of the above ideas suit your situation or you want to know more, our UK-qualified tax advisers and financial planners can help explain.
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