There are no restrictions on foreign investment in the UK and non-UK resident individuals investing in the UK are generally only subject to UK tax on limited UK source income and gains. Tax, of course, is not the only consideration when investing in a foreign jurisdiction.
If you are considering investing in the UK our key message is simple: obtain advice early.
Our top 5 tips are:
1. Non-residents are only liable to UK tax on certain income and gains: Non-resident individuals are not subject to UK tax on UK source bank interest or dividends paid on UK shares. However, non-residents are subject to UK tax on rental income from UK real estate, at rates of up to 45%. Holding UK rental properties (residential or commercial) through a non-UK company can reduce the rate of UK tax on the rental income to 19%.
Non-resident individuals are not generally subject to UK capital gains tax (CGT) on gains realised on the disposal of assets, even UK assets. However, they are subject to CGT on gains realised on disposals of interests in UK property (residential or commercial) and UK property-rich entities. Again, holding UK property through a non-UK company can reduce the rate of UK tax on any gains realised on a sale of the property from (in the case of residential property) 28% to 19%.
The overall tax position in relation to any UK investment will, of course, be impacted by any taxes imposed in the investor’s home jurisdiction, and the terms of any applicable double tax treaty.
2. Hold UK investments through a non-UK company: If you are non-UK domiciled (and are not deemed domiciled in the UK) you will be liable to UK inheritance tax (IHT) on UK assets. Holding UK assets indirectly through a non-UK company will often (but not always) remove their value from the scope of IHT. This is because what you own is a non-UK asset (the shares in the non-UK company) and not the taxable UK asset. However, this strategy does not work for UK residential property. If you own UK residential property (whether it is used by family members/friends or let out to third parties) through a non-UK company the shares in the company will be subject to IHT to the extent that their value derives from the UK residential property.
3. Tax reporting deadlines can be very short: Non-UK residents who are liable to UK income tax or CGT must file a UK tax return. This is the case even if the UK tax is relieved under an applicable double tax treaty. Non-residents’ tax returns must, generally, be submitted by 31 January after the end of the UK tax year to which they relate, with any tax payable being due at the same time as the tax return. However, non-resident individuals who dispose of UK real estate must file a special non-resident CGT return and pay any tax due within 30 days of the disposal.
Note: UK tax years (unusually) run from 6 April in one year to 5 April in the following year.
4. Confidentiality: It is generally possible to hold UK assets (including shares in UK companies) through a nominee to protect your privacy.
However, if you own or control more than 25% of the shares of a UK company (whether through a nominee or not) the company will have to include your details on its register of ‘persons with significant control’ (PSC) over the company. Information on a company’s PSC register is available to the public.
Under current proposals, a publicly accessible register of the beneficial owners of UK real estate will also be available from 2021.
5. Make a UK Will and a Lasting Power of Attorney: You should consider making a UK Will to cover your UK assets as it will likely make dealing with the assets simpler in the event of your death. You should also consider making a Lasting Power of Attorney (LPA) – this is a special power of attorney which will enable your nominated attorney to deal with your UK assets in the event that you lose capacity. Even if you have a similar document in your home jurisdiction making an English law LPA may be advisable as a foreign power may not automatically be accepted by the people and organisations your attorney needs to deal with. The English LPA can be restricted to cover only decisions in relation to your UK assets.