How to own a property in the UK?
Please be advised that the information in this article regarding QNUPS and IHT is no longer accurate due to the recent changes announced in the UK Budget. Starting in April 2025, the regulations will have significant implications that may affect your understanding of these topics. We encourage you to stay informed and consult with a Soteria Trusts expert to navigate these changes effectively.
Owning property in the United Kingdom (UK) can be an enticing prospect for many, whether as a home or an investment. However, navigating the process can seem daunting, especially if you’re unfamiliar with the UK’s property market and taxation system.
This article will shed light on three main ways to own property in the UK: personal ownership, ownership through a company, and ownership through a Trust, including Qualified Non-UK Pension Schemes (QNUPS).
Property Owned Personally
The most straightforward way to own property in the UK is to purchase it personally. This method involves buying the property in your name without involving any company or trust structure. There are several steps involved in buying property personally in the UK, including finding a property, arranging a mortgage (if necessary), hiring a solicitor to handle the legal aspects, and completing the purchase.
There are advantages and disadvantages to personal ownership. On the plus side, it’s a simple and direct method. However, it may also expose you to personal liability, and you might face higher Stamp Duty Land Tax (SDLT) charges, especially if you’re buying a 2nd property or buying from overseas, compared to other ownership models.
Income Tax Rates are the highest for property owners who hold the investment in their name, and can range from 20% to 45% after annual allowances.
Additionally, should you decide to sell your buy-to-let property, you will be liable to pay Capital Gains Tax (CGT) at a rate of either 18% or 28%, contingent upon your overall taxable income and the size of the gain. While primary residences usually qualify for CGT exemption, second homes and investment properties typically do not, making them subject to this tax.
Property Owned Through a Company
Another popular way to own property in the UK is through a company, often referred to as a Special Purpose Vehicle (SPV). This approach involves creating a company to buy and hold the property. The property is owned by the company, and the individual owns the shares of the company.
The primary advantage of this method is that it offers limited liability. If anything goes wrong with the property, the company absorbs the impact, not the individual. It can also be more tax-efficient in some cases, especially for higher-rate taxpayers or those who plan to rent out the property. However, this method can be more complex to set up, secure finance for and manage. It also places ongoing annual tax and reporting obligations on you as you are required to comply with company laws and regulations.
Property Ownership Through a Trust or Pension
The third method of owning property in the UK is through a Trust or pension structure such as a Qualifying Non-UK Pension Scheme (QNUPS). A trust is a legal arrangement where one or more trustees hold property for the benefit of others, known as beneficiaries. A QNUPS is a specific type of overseas pension that is either administered under trust or contract that can hold a variety of assets, including residential property.
One of the main advantages of owning property through a QNUPS is the potential for significant tax efficiencies, particularly regarding inheritance tax which is completely mitigates. It’s also a good way to protect assets and ensure they pass to the right people when you die. Setting up and managing this type of structure can be complex and therefore requires expert advice.
In conclusion, owning a property in the UK can be achieved through various methods, each with its own advantages and disadvantages. It’s crucial to understand these and seek professional advice to determine the best path for your circumstances.
Contact Soteria Trusts for a no obligation discovery meeting to learn about various methods to reduce UK Property Taxes (including reclaim of overpaid Stamp Duty Land Tax), such as rental income tax, capital gains tax, AETD and Inheritance Tax.
