Overseas investors continue to look to the UK as an attractive location to invest. But what are the key tax implications? Take a look at our guide on structuring your real estate investment in the UK to find out.

1. PRACTICALGUIDANCE
ONSTRUCTURING
UKREALESTATE
INVESTMENT
Overseas investors continue to look to the UK as
an attractive location to invest. But what are the
key tax implications?
INVESTING IN UK REAL ESTATE
Stamp Duty Land Tax (SDLT)
SDLT is payable at a rate of up to 4% on
the purchase of commercial property.
Where a company holding UK property
is acquired, SDLT may not be payable.
Financial and tax due diligence should
be undertaken before acquiring an
existing company.
The buyer’s lawyers will usually
submit the SDLT return and make
any payments.
Taxation of rental income
Net rental profits are subject to income
tax at a rate of 20% for companies and
up to 45% for individuals.
These profits are calculated in line
with accounting standards. Although
deductions may be restricted for capital
expenditure and connected party
transactions which are not provided on
an arm’s length basis.
Taxation of capital gains
Capital gains realised by non-resident
investors on commercial real estate is
generally tax free. Although care needs
to be taken if the real estate is used in
a UK trade carried on by the investor or
if there are UK resident investors in the
structure.
Inheritance tax (IHT)
UK domiciled and deemed domiciled
individuals are subject to UK IHT at a
rate of 40%.
Non domiciled individuals are also
subject to IHT at a rate of 40% on
their UK sited assets. This includes
UK commercial property. Shares in
non-resident companies (holding UK
real estate) are generally not UK sited
assets and therefore, if held by a non-
domiciled individual will not be subject
to IHT on their death.
Finance costs
Deductions are available for third
party finance costs and connected
party loans to the extent that they
are provided on arm’s length terms.
Restrictions may arise on a refinance.
Withholding tax, however, is required to
be paid over to the UK tax authorities
at a rate of 20% on interest payment
arising from UK sited loans. It may be
possible to structure loans so that they
are not subject to UK withholding tax.
Depreciation
Depreciation is not an allowable
deduction in calculating taxable profits.
However, allowances are available for
certain capital expenditure in the form
Adrian Benosiglio
Real Estate Tax Partner
T 44 (0)20 3201 8694
adrian.benosiglio@rsmuk.com

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of capital allowances. These allowances
can reduce an investor’s exposure
to UK income tax. When acquiring a
property or carrying out refurbishment,
advice should be taken to ensure that
capital allowance claims are maximised,
which will have an impact on the value
of a property.
Value Added Tax (VAT)
VAT is based on the location of property
and not where an investor resides.
Therefore, if a vendor is required to
charge VAT on the sale or lease of
commercial property the investor will
need to factor this into his cash flow
and or cost projections. However,
where a vendor has opted to charge
VAT but the property is let to tenants or
agreed to be let to tenants potentially
it can be acquired without VAT being
chargeable to the purchaser. However,
there are very specific rules that must
be followed in these cases.
Where an investor has acquired a
commercial property they can normally
choose register for UK VAT as an
overseas taxable person and elect and
charge VAT both in respect of the rents
and on any sale proceeds. This should
entitle him to recover VAT incurred
on the purchase and on on-going
expenditure relating to the property.
Where a property is used for both
commercial and residential purposes
extra care needs to be taken to identify
additional VAT issues.
The UK standard rate of VAT is 20% and
VAT returns are typically three month
periods with submission the 7th day of
the second month following the end
of the VAT period.
Tax residence
A company is tax resident in the UK if
it is either incorporated or managed
and controlled in the UK. It is therefore
essential that these conditions do not
apply if a company is to maintain the
benefits of its non-resident status.
When acquiring a non-resident
company, a review of its status
should be undertaken.
Dealing or developing UK land
Dealers or developers in UK land can
be subject to UK income or corporation
tax on their profits. Certain jurisdictions
have treaties with the UK which may
mean that these profits are not subject
to UK tax. Where there is such activity,
appropriate advice should be taken to
ensure that the risks of unexpected tax
charges are managed and appropriate
filings are submitted to the relevant tax
authorities.
Direct tax compliance
The UK tax period runs to 5 April each
year. An annual income tax return is
required to be submitted by 31 January
following that year.
Tax payments are due on 31 January
within the tax year and then on 31 July
and 31 August following the tax year.
Unless an offshore investor is
registered under the non-resident
landlord scheme (“NRLS”), the agent
or tenant is also required to withhold
20% of any rental payments to the
landlord. A tax return is then required
to be submitted, which will reclaim any
overpaid tax. This can result in a cash
flow disadvantage.
How RSM can help
We can advise on the acquisition
of new properties and companies,
refinancing, compliance and assist
with disposals. We can also assist
the investors with their personal tax
planning and compliance.
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