Top 4 Tax Tips Every Asian Investor In UK Properties Should Know

Property

Top 4 Tax Tips Every Asian Investor In UK Properties Should Know

We ask Peter Milnes, Managing Director of Rawlinson & Hunter Singapore, to help us make sense of the current UK tax regulations, including the new rules on inheritance and capital gains taxes.

Published on 26 October 2016

If you are thinking of putting your money in UK properties due to the decreased value of the British pound post-Brexit and soaring property prices, it is important to understand the tax implications before you take the plunge. We sat down with tax expert, Peter Milnes, Managing Director of Rawlinson & Hunter Singapore, to ask him to share more about his work and firm, as well as his advice on the tax challenges facing keen property investors.

Tell us about the work that you do at Rawlinson & Hunter
In 2013, Rawlinson & Hunter approached me to set up their Singapore office and I became the local Partner here. In our Singapore office, we focus on Singapore and Indonesia tax advice. I’m also the contact point for clients in Singapore who may need to seek tax advice in the UK. We’re also a licensed Trust Company so we can act as trustee for clients in Singapore.

How does your firm differ from other tax consulting companies?
Generally, we’re dealing with entrepreneurs, family offices and ultra high net worth individuals. All our clients have the contact details of our Partners and managers so we are available 24/7 for our clients. We have a stable team so there won’t be a scenario when a client approaches us with a new case and the case gets passed on to a different staff member the following week.

We build relationships with our clients and we intend to grow and work with our clients over time. We are also one of the few accounting and trustee providers who are still independent. As an independent firm, we are able to make decisions quickly and assist our clients in a fast-paced environment.

In fact, one of our senior partners joined the company when he was 16 years old and has recently retired, having worked at R&H all his life! He has been servicing the same clients throughout his career at Rawlinson & Hunter.

How will the new tax regulations in the UK affect Asian investors?

The new rules seek to protect UK citizens as the previous regulations were seen to benefit international investors. In particular, Capital Gains tax on the sale of property used to only be applicable to UK domiciled individuals.

  •      One of the new rules started with investors having to pay £3,500 a year in Annual Tax on Enveloped Dwellings (ATED) for properties bought for at least £500,000 from April this year (the higher the value of the property, the higher the ATED charge). First introduced in 2013, the previous payment threshold started at £2 million, but was expanded last year to include residential properties owned by foreigners worth more than £1 million. That’s the value of most properties in London. The amount of tax payable increases with the property’s price.

 

  •    Foreign assets are outside the scope of IHT when owned by individuals who are neither UK domiciled nor deemed domiciled, or by trusts settled by individuals who met those criteria at the time the settlement was made.  Up to now, there have been no “look through” provisions for IHT, so that UK assets can be held within a foreign company, or similar opaque foreign entity, and be effectively excluded by such means. This technique (“enveloping”) is frequently used to shelter UK residential property from IHT. With effect from April 6, 2017, the rules will be changed so that shares in offshore companies which would be “close companies” if UK resident, and shares or capital in similar entities, will no longer be excluded property if and to the extent that the value of the shares or capital is attributable to UK residential property. These changes will extend to overseas partnerships owning UK residential property.

 

  • Foreigners will need to pay a capital gains tax on any gains (subject to various limits and allowances) they make when they sell a property. Prior to April 2015, this tax only applied to UK residents. The capital gains tax will now apply to non-UK residents, trustees, certain closely-held fund structures and companies. Upon the disposal of a UK residential property, including rental properties, a capital gains tax will be charged on the increase in value of the property. So if a property was bought for one million and later sold for two million, a capital gains tax will be imposed on the seller.

 

Top 4 Tax Tips For Asian Investors

01.

The UK tax regime is very complicated. There are numerous rules around capital gains tax and income tax charges. So my advice is for investors to seek out a professional tax advisor in the UK. The amount of tax payable will depend on the individual’s circumstances, his residence and the number of ties he has in the UK.

Tip: Find out how many ties you have in the UK as that will impact your income tax liabilities.

02.

If a property in the UK is for own use, we will recommend that the property to be registered in the owner’s name to avoid any issues with enveloped dwelling taxes.

Tip: Be careful how you own a property in the UK and take tax advice on the most efficient structure for you.

03.

In order to calculate the amount of tax liabilities, investors need to consider whether the property is going to be used for owner’s occupation or for rental income. They also need to consider how long they intend to hold on to the property.

Tip: Don’t cut corners when working out your tax liability. Engage a tax advisor to calculate the amount of taxes that need to be paid.

04.

In the past, if an investor has rental property in the UK, there will be some tax relief on the initial rental income capped at the first £10,000 that he receives. That is no longer the case. But the investor can claim tax relief on expenses relating to the rental of the property.

Tip: Take advantage of tax relief on your expenses payable due to the rental of the property.

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