Lisa Spearman is a partner with Mercer & Hole in London. Mercer & Hole is a member of our International Alliance TIAG and Lisa will be joining us when ESV hosts the TIAG conference in Sydney from October 30.
The UK has several specific rules relating to real property and we have asked Lisa to highlight some of the key issues to watch.
- Inheritance Tax (IHT) is payable in the UK. If a property is owned by an individual there will be UK tax reporting on death and there could be tax to pay if the property is worth more than £325,000. As an extra note UK IHT, can apply to any UK asset not just real property so look out for shareholdings in UK companies as well. UK IHT is payable at 40% and is not creditable against Australian taxes.
- Lifetime gifts to a trust or company can also attract IHT and there could be charges at other times during the life of a trust particularly at the 10th anniversary of the trust’s creation or where property leaves the trust. These charges can also apply not just to properties but loans relating to properties and other indirect holdings where the value derives from UK real property.
- Lifetime gifts to an individual are free of tax if the donor survives the gift by 7 years but don’t forget to look back for that period in the event of a death.
- Capital Gains Tax (CGT) can apply even if inheritance tax does not. Any disposal of a property whether by sale or gift will need to be reported to the UK authorities within 30 days and there are stiff penalties for late filing. Please refer to our article on UK CGT on real estate.
- Properties which you have lived in may enjoy some relief from taxation but the sums can be a little tricky, so we suggest you take advice well in advance rather than waiting to sell the property and be up against that 30 day deadline.
- The UK charges tax on rental income received. There are certain deductions, but loan interest relief is limited and there is no depreciation deduction. The UK tax paid should be creditable in Australia but you will need to file UK tax returns.
- Trusts (even those established outside the UK) must be registered with HM Revenue & Customs if there is a UK tax position and the registration includes details of settlors and beneficiaries. Trustees can face a penalty for failure to register.
- Companies owning property in the UK can face a regime known as ATED (Annual Tax on Enveloped Dwellings) if the property is worth more than £500,000. This generates an additional separate filing requirement and tax bill.
- UK stamp duty land tax is payable on the consideration property is acquired whether freehold or leasehold. The rate of tax depends on the circumstances at purchase, but it is worthwhile checking the costs of purchase in advance as it can be an unexpectedly large additional cost.
If you would like further advice, please speak to your ESV engagement partner on 02 9283 1666.