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Income Tax

Income tax is a tax on income. However, not all income is taxable and some people will qualify for the UK Personal Allowance enabling them to earn a certain amount tax free. To find out if you are eligible for the UK Personal Allowance, check with HM Revenue and customs or speak with an accountant

*UK Personal Allowances are also available to certain other individuals (if covered by a relevant double tax treaty)

UK Resident
( British/EU citizen)
Non-UK Resident
( non-British/EU citizen)
Offshore structure
( trust and/or company )
Income tax deductibles
Loan InterestRefer to table on page 17
Property running costs (maintenance and repair)333
UK Personal Allowance 3*3*N/A
2017/2018 level of tax free UK Personal Allowance (per owner)GBP 11,850N/AN/A
2017/2018 tax rates on surplus rental income
Up to GBP 33,50020%20%
GBP 33,501 – GBP 150,00040%40%All at 20%
Over GBP 150,00145%45%All at 20%
Tax YearProportion of interest of which can be
deducted from property income
Proportion of interest relieved at the
basic rate tax
2016 - 2017100%0%
2017 - 201875%25%
2018 - 201950%50%
2019 - 202025%75%
2020 - 20210%100%

Mortgage Interest relief restrictions

Previously, buy-to-let investors were able to claim tax relief on their mortgage interest payments. In other words, they could offset the cost of the mortgage interest from their rental income when they calculate their profits. They would then pay tax on their profits according to their income tax band.

From 6th April 2017, this relief will begin to be phased out and by 2020 landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.

The Government will allow a tax credit equivalent to basic rate tax (currently 20%) on the interest, which will slightly offset the increased cost.

How the new regime will be phased in:

Capital Gains Tax

Capital Gains Tax (CGT) is a levy on the profit made on an asset, payable upon disposal of that asset.

From April 2015, non-residents are taxed at the same rate as domestic investors. The tax applies to all individuals and companies (except those falling under the ATED structure), and will only be levied on gains made after April 2015.

The rate for individuals will be 18% or 28% depending on the person’s total income in the UK and chargeable gains for the year. As with domestic investors, there is a GBP 11, 300 (to be increased to GBP 11,700 in April 2018) tax-free allowance for individual investors from overseas. However for any commercial property held new lower rates of 10% and 20% may apply.

There are a number of exemptions, for example if a non-resident spends less than 90 nights in a property in one year and it is not their Principle Private Residence (PPR). An accountant or tax advisor will be able to clarify further details.

Inheritance Tax

Inheritance tax (IHT) is paid on an estate when somebody passes away. The threshold value for an estate to be subject to IHT is GBP 325,000. For a married couple, the threshold is GBP 650,000.

Tax will be levied on any estate valued above this point at a rate of 40%, or 36% if the estate qualifies for a reduced rate as a result of a charitable donation. The reduced rate is applicable if 10% of the net value of the estate is given to charity. The net value is minus the ‘nil-rate band’ and any other reliefs and exemptions applicable.

UK resident
(British/EU Citizen)
Non UK-resident
(non-British/EU citizen)
Offshore Structure
(Trust and/or company)
Exposure on UK investment✔ * x
Tax Free equity (2017/ 2018 rates)GBP 325,000GBP 325,000N/A
Taxable rate on balance (net of outstanding loans)40%**40%**N/A

HW Fisher and Company

*If UK domiciled, inheritance tax exposure is on all worldwide assets
**Consider offshore structure (for non-UK domiciled individuals) or insurance cover to mitigate tax exposure.

There have been a number of changes to IHT relating to non-domiciled British citizens, with the government now taking into consideration properties owned in foreign countries as well as any UK estate. We recommend speaking to a lawyer regarding how the changes could affect your estate.

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