Buying Property in the UK: Tax Issues for Indians and NRIs
If you are thinking of buying in property in the UK, then you should consider Indian and UK tax considerations and be organizing any investment in a tax efficient manner. It I s important because every country has rules & regulations and every individual must follow the rule when purchasing a property in foreign countries and you must also know what you will be expected.
Buying property in the UK is a comparatively easy and simple process and they don’t apply any different procedures for foreign investors. However, once you have chosen your desired UK property, and reached an agreement for the purchase price, then you must consider the tax issues. Determining UK tax responsibility: When an Indian wants to become a resident in the United Kingdom when they buy real estate in the UK, then they should consider their residence status, which is a key element of determining which UK taxes are applicable. The responsibility to UK tax is decided by both the individual domicile and residence status. What is the residence? Generally, if any individual who lives in the UK as a resident and spends over 183 days in the United Kingdom during the tax year. The resident of the UK must have their residence in the UK and who is listed with a medical practitioner and who has been in the United Kingdom for six-months are considered as the residence of the UK. Till 2009 April 6th, the UK government applied the rule that if the individual visiting the United Kingdom spend ninety-days per year, and on an average over a four year time, then they are considered as a non-UK resident. However, if any individual who comes to stay in the UK or who wants to spend time in the United Kingdom must take suggestions on their tax residence arrangement in the UK. What is the domicile? An individual may have several residences, but may have only one domicile for the UK tax reasons, then it is considered that the person abides in the place where he or she has their own home. A person can obtain the domicile of their father at birth, and if they want to sell their old domicile and intended to live in a new place and an individual who is not the residence of the UK can as well benefit from the UK favorable tax treatment even if they live in the UK. |
Taxes in the UK for Indian Buyers
|
There are 4-main taxes that can affect individuals from India who purchaser UK property , which include:
Income Tax: Income tax is applied to the income of the individual’s income, and the maximum income tax rate will be 50 percent. CGT (Capital Gains Tax): CGT will be applied on the profits of the capital that obtained from the assets that you have sold or gifted in some cases. The maximum cost of a CGT is 18 percent. IHT (Inheritance Tax): It is a tax applied to the person’s value of the estate and on other lifetime gifts. The allowance of IHT on assets will be around 325,000 pounds that are 40 percent taxable on a person’s death. SDLT (Stamp Duty Land Tax): The SDLT tax applied when you buy land in the United Kingdom. The maximum rate of SDLT is 4 percent and allocated by the indication to the purchase cost. UK tax accountability for Indian investors: Income Tax: If an individual who is not resident in the United Kingdom and who is non-UK domiciled are liable for the income tax in the UK on any kind of UK source earning. For instance, the individual who receives rental income is liable to income tax. The payment of the United Kingdom IT (income tax) on rental income can be negotiated under the NRLS (Non-Resident Landlord Scheme)in which the real estate agent will make arrangements for the liability of tax for you. For any Indian, a credit is available for any tax paid on the same earnings. But, some Indians do not like to choose the NRLS option as the tax payable by the NRI or resident Indian on the UK property is premeditated on total gross rental income without deducting for acceptable costs like maintenance and repair, insurance, agent’s commission, accountancy and legal fee and mortgage interest that is considered as the most important factor. You can avoid choosing NRLS, for getting the return from the UK tax from the rental income and tax payment. You will not have any accountability on Capital Gain Tax of UK, but you may have accountability for Indian tax when you sell the property. Also, you will be accountable for Inheritance Tax on any property in the UK on death. The United Kingdom resident is accountable to the UK tax on their capital gains and global income. However, this rule is customized for residents who stay as non-UK domiciled. The UK residents who are non-UK domiciled can choose from their non-UK profits to be taxed on an allowance basis, and it includes non-UK income and profits from the UK tax expect to remit to the UK. This process is called the tax reimbursement. Managing UK property purchases: If an Indian citizen buying a property in the UK, then they should know clearly about their UK tax status and also they should know how to reduce liability to UK taxation when buying the property. |
Legal Process to Buy Property in the UK
|
Different ownership structures can be considered:
Buy the property in your own name: It is a simple and most beneficial option as it allows you to be the officially authorized owner of the property on Registry and HML. However, the value of the property will be accountable to IHT after death if the value exceeds the Inheritance Tax allowance. But, if you buy the property in your own name, accountability to IHT can be decreased or ignored by scrounging against the property value, separating ownership between your family members, and each member will have their own inheritance tax allowance, or by getting the life insurance and putting the death profit in trust. You will be accountable for income tax of UK on the rental property income that you get from the property. You are allowed to subtract any interest costs on a mortgage from the rental property income for the UK tax purpose. But, you are not accountable for CGT when you want to sell the property unless you the residence of the UK tax. The process of buying a house in the UK: The property purchasing process in the UK varies slightly from the process of buying a house in India. In terms of time, the process usually takes 2 to 3 months max, but sometimes it can take longer time as well. The process takes a long time if you are a part of continuous seller and buyer’s part that are waiting on the sale or purchase of other properties. Buy real estate in UK, but before buying a house, you should get a right estimation of your finances so that you can decide on the right property. Also, check if the mortgage is in your own capital or principle as it can help you avoid unwanted delays once the offer is accepted, or if you want to move quickly to secure your home. Mortgages in the UK: If you want financing to buy a UK property, then it is possible for non-residential of UK to obtain a loan from the mortgage broker or the UK bank. Most of this house loan lender will ask you to deposit, which will be around 10 percent of the loan and it rises to 40 percent for foreigners. |