Buying UK property has long been an attractive investment. And that’s not only the case for British citizens but also for Singaporeans and other foreign nationals. Yet the dream of owning a quaint cottage in the tranquil English countryside, generating rental income and growth, can quickly turn into an expensive nightmare if you buy without understanding the tax implications. SIMON CHEGWIDDEN of Avrio Wealth takes us through what you need to know.
How is UK stamp duty and UK inheritance tax calculated?
Unlike Singapore, the UK taxes a deceased’s estate at a rate of 40% above the nil rate band, currently £325,000. If you are British domiciled, very broadly meaning you were born in the UK to UK parents, His Majesties Revenue and Customs (HMRC) will assess your global assets for UK inheritance tax (IHT). There is often a misconception that once you are a non-UK tax resident, you’re no longer liable for UK IHT. This is unfortunately far from the truth.
UK inheritance tax also applies to non-UK-domiciled owners of immovable assets in the UK, ie property. So, though there’s no IHT in Singapore, Singaporeans could find themselves paying up to 40% IHT of their property value to HMRC. This may seem a little unfair when you consider that a non-UK resident will have already paid up to 5% additional stamp duty when buying the property, the property income would have been assessed for UK income tax and, had they sold, they would have been a potential UK capital gains tax assessment.
Buying UK property and making the most of your investment
Let’s take a scenario where Mr and Mrs Sing buy a property in England for £800,000. Mr Sing buys it in his sole name. Mr and Mrs Sing have one son who is 10 and they also own a property in Singapore.
How does UK stamp duty work?
As they already own a property, even though it’s in Singapore, they will have to pay standard UK stamp duty, plus additional property stamp duty rate of 3%, plus the non-resident stamp duty rate of 2%. This totals £67,500, an effective rate of 8.4%.
Who pays UK inheritance tax?
A year later, Mr Sing passes away without writing a will. The property is still valued at £800,000. As Mr Sing did not have a will, the UK laws of intestacy (dying without a will) dictate that Mrs Sing receives the first £270,000 plus half the residue and their son receives the remaining half. As their son is only 10, he cannot inherit the money until he is 18. His share will therefore need to be held in trust until he reaches 18. On top of that, HMRC will assess the property for UK inheritance tax. The executors of his estate will need to pay any tax due, before the property, or proceeds of the property sale, pass to his beneficiaries and trusts.
When you look at the net effect of this, their £800,000 dream property investment has attracted UK stamp duty and inheritance tax, and part of their estate is now tied up in a trust for their son, which he will take ownership of when he reaches 18 regardless of his parents wishes.
Tips before buying or investing in property in the UK
The majority of these issues could have been solved with some simple pre-planning. This includes Mr Sing buying with his wife as joint tenants, writing wills in the UK and Singapore, and simple, non-investment-based life insurance to cover any inheritance tax liability.
The moral of the short story? Always take independent advice from a professional who understands the implications in the country you’re buying or investing in. Don’t rely on a well-intended property sales agent, bank or purchasing solicitor, as their role and liability may not extend to all relevant areas of financial planning.
Set up an online consultation to see if Avrio can work out a long-term solution for you.
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This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third party sources. For additional information about the firm, visit the MAS website at mas.gov.sg and SEC website at adviserinfo.sec.gov. For a copy of the firm’s ADV Part 2 Brochure, contact info@avriowealth.com.
