Thomas LR Griffiths 2022 guide to property tax in the UK for American expats
Thomas LR Griffiths, an expert on US expatriate tax matters, discusses his essential guidance for navigating property tax in the UK in 2022.
US expats who want to buy property in the United Kingdom must understand the associated tax implications. This easy-to-understand guide will provide everything you need to understand what your UK property tax obligations are, how much they cost, and when to expect them.
What are the different UK property tax obligations?
There are several taxes you should know about if you are renting or planning to buy property in England. Thomas LR Griffiths of Ingleton Partners has been helping people navigate these for many years and has explained each below.
Taxes to be aware of when renting
While most of the UK property taxes discussed here are only relevant to expats in the buying market, there are some that renters must pay, and some that are only relevant for expatriate taxes.
This is also commonly referred to as residential property tax and people must pay this whether they rent or own property.
What is Council tax?
It is a tax calculated based on the market value of a property and is used for local government and services. The United Kingdom government website lists the various council tax bands to help those living in the country calculate the fee they owe.
Some factors that affect residential property tax rates include the size, amenities, and location of a property.
Property taxes that buyers must pay
If you are planning to buy property, not just rent, while in the United Kingdom then you will need to be aware of some additional taxes.
Stamp Duty Land Tax
People who purchase property in the UK that is worth over £125,000 (or approximately $154,500) must pay Stamp Duty Land Tax.
When will you have to pay SDLT?
You have 14 days after the completion of a property purchase to send your Stamp Duty return to HMRC.
You must send an SDLT return on all property purchases over £40,000 regardless of whether they are over the minimum threshold.
Stamp Duty thresholds
Stamp Duty isn’t a flat rate tax, it is a percentage of a house’s perceived value. The current thresholds are as follows:
|Property value||SDLT tax rate (as a percentage)|
|£125,001 – £250,000||2%|
|£250,001 – £925,000||5%|
|£925,001 – £1.5 million||10%|
|More than £1.5 million||12%|
If you bought a property worth £250,000 then you would only pay tax on the property worth over £125,000. So, the 2% SDLT tax on a £250,000 property would be £2,500.
SDLT and second properties
For a second property (or property to let), you will have to pay an additional 3% and a slightly different Stamp Duty rate. You will need to pay this if you own another property, even if that property is not in England.
You may be able to claim the difference in SDLT rates if you are buying a second home that will replace your main residence. An enrolled agent like Thomas Griffith is ideally positioned to offer specialist assistance with such complexities.
SDLT and first-time buyers
First-time buyers may also be eligible for SDLT relief and could only have to pay the tax on property purchases over £300,000.
SDLT and commercial property
It is worth noting that the threshold for non-residential properties is slightly higher at £150,000 (almost $185,000).
Inheritance tax can be a complicated matter and while it is usually most relevant to UK citizens, it can also affect expats.
Inheritance tax must be paid on property that is received when somebody dies. These tax rates can vary quite drastically depending on the region.
The minimum inheritance tax threshold is £325,000, meaning that beneficiaries will only need to pay tax on estates worth more than this. But the rate for inheritance property above the threshold is relatively high at 40%.
For instance, if you own property in the country then this will be taxable as inheritance should you pass with ownership of the property. Furthermore, those expats considered as UK domiciles could also have inheritance tax on their assets if they pass.
A person is usually considered as a domicile if Britain was their father’s permanent home when they were born. However, for inheritance tax, HMRC often classes those who were born or raised in the UK and own property in the country as domiciles.
UK property and expatriate tax matters
US expatriate tax matters are rarely a simple thing. Those who are considering moving out of the US, or who have recently done so, should be aware that American taxes operate according to citizenship, not residency.
Even expatriates who have been living and working in the UK for many years, or dual UK-US citizens, must complete tax returns for the IRS.
When considering what UK property tax you must pay, American expats must also think about how these taxes will affect their Internal Revenue Service tax obligations.
Getting help with UK property and expatriate taxes
Thomas LR Griffiths is ideally positioned to offer specialist assistance on US expatriate taxes. As an enrolled agent, he can help expats navigate the murky waters of both the Internal Revenue Service and UK government requirements.
The good news is that US expats often end up owing less than they first think. The key is that you must know the various credits and deductions that you are eligible for. And this is where taxation technicians or advisors are particularly useful. Having handled expatriate tax matters for many years, experts like Thomas LR Griffiths (an enrolled agent of Ingleton Partners) can ensure their clients’ tax bill is reduced wherever possible.
Capital gains tax is based on the profit made when you sell an asset like property. If you sell a home for more than you bought it, you will need to factor this difference in your expatriate tax matters.
Given that house prices in the UK went up by an estimated 10.8% from April 2021 to 2022 according to Forbes, those selling property around this time are likely to face potentially higher CGT rates.
You should know that this tax is only charged on the profit made, not on the amount received in a sale. Currently, you don’t have to pay CGT if the profit is under the tax-free allowance rate of £12,300.
Annual Tax on Enveloped Dwellings
Enveloped dwellings are classified as UK residential properties that an individual purchased or received.
But there are many category exemptions for this tax, all of which taxation technicians are ideally positioned to help you apply for and understand.
Annual taxes on enveloped dwellings are based on the value of a property as follows:
|Property value||Annual charge|
|More than £20 million||£236,250|
Reducing your HMRC and Internal Revenue Service tax obligations
If you want to guarantee that you aren’t paying any more tax than is necessary, consider enlisting the help of Taxation Technicians Association (ATT) members. Experts like Thomas LR Griffiths of Ingleton Partners can offer specialist assistance to those in need of help with their UK property and expatriate taxes.
Property taxes can involve large sums of money and US expatriate tax matters are known to be confusing. Given these factors, it is highly advised that US citizens renting or buying property in the UK consult a tax professional experienced working with HMRC and Internal Revenue Service.