The UK remains a popular location for EU nationals to relocate for work and to raise a family. European expats are free to purchase property and obtain mortgage borrowing should it be needed. In most instances, they will be required to pay the relevant taxes on property, including inheritance tax, says Olivia Meekin.
One of the questions I am regularly asked by UK nationals living and working in the UK and buying a residential property is what taxes will need to be paid and can I avoid paying inheritance tax on a UK home?
In short, it is not possible to avoid paying tax in the UK on property purchased here, but what taxes you do pay may change depending on your residence and domicile status.
Anyone buying a home in the UK will be liable for stamp duty on the purchase of that home. It is a tiered tax, with the following rates applied:
- The first £250,000 – no tax paid
- £250,001 – £925,000 – 5%
- £925,001 – £1.5m – 10%
- Over £1.5m – 15%
If a second property is purchased, an additional 3% surcharge is applied. It is a tax that cannot be avoided.
The extent to which other taxes, such as inheritance tax, may arise will be determined by your domicile and residence. The two are often confused but are quite different. Whilst domicile looks towards an individual’s long-term tax status, residency looks to the current tax year.
Domicile is decided by where an individual has a permanent home or where that individual intends to live for a prolonged period of time or permanently. Domicile is typically decided by birth but can change should you leave that country.
The UK government in 2017 introduced the concept of ‘deemed domicile’, meaning that any individual living in the UK for at least 15 of the last 20 years will be considered domiciled in the UK.
Those considered domiciled in the UK can find themselves facing a UK tax liability not just on their UK assets but on their global estate.
HMRC will consider an individual resident for tax purposes if they remain in the UK for more than 183 days in any one tax year and extends to income tax, capital gains tax and inheritance tax.
Residency is determined by three separate tests – the automatic overseas test, the automatic UK test and the sufficient ties test. The tests are far from straightforward, and it is possible to be ‘tax resident’ in more than one country.
Individuals who are resident in the UK but not domiciled will have to pay tax here on their UK assets in much the same way as those who are domiciled. The one meaningful difference is that assets and cash that remain outside of the UK will not fall into the UK tax regime.
It is possible for non-doms to claim the remittance basis, allowing them to bring overseas assets and income into the UK for an annual fixed fee.
The UK tax regime for EU nationals is complex and cannot be avoided. The extent to which tax is paid will be dependent on several different factors and advice should always be taken before making a permanent move or buying a UK home.
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The above is correct as at 01 November 2022. The information above may be subject to change as this is a constantly evolving situation.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.