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Tax Implications for Social Housing Investors: A Comprehensive Guide

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Tax Implications for Social Housing Investors – A Comprehensive Guide 

For overseas property investors looking at the UK housing market, understanding the tax obligations is essential for maximising return on investment and ensuring long-term success.

The role of these investments in addressing the housing crisis by providing affordable housing for those in need is significant. With the demand for social housing rising, investing in this sector has a positive social impact and offers the potential for substantial returns. Navigating these investments requires a keen awareness of financial and societal benefits, whether through direct purchase or lease agreements.

Why Choose Social Housing Investments

The social housing sector can be one of the best investment opportunities, particularly the support living sector, as it offers the opportunity to earn a passive income without the stresses or worries that generally come hand in hand with being a landlord. 

Investing in social housing means you get contracts from a housing provider that guarantees steady rental income backed by the UK government, offering security not available to private landlords. Plus, it’s a more hands-off way to invest in rental property in the UK. Additionally, this investment approach allows for a less involved method of property investment, freeing you from the day-to-day management typically required in private landlord arrangements such as: 

  • Ground Rent
  • Finding and keeping suitable tenants
  • Letting agents’ fees
  • Property maintenance and management

Social properties linked with housing providers attract high yields of around 9% whilst following the consumer prices index, giving you a stable increase in line with inflation.

Consumer Price Index (CPI)

The consumer price index measures the change in prices UK consumers pay for everyday goods and services like clothing, groceries and fuel. It compares the prices of goods and services to how much things cost consumers the previous year. An updated figure is published each month, allowing companies to increase costs in line with inflation where necessary. 

However, one thing you need to consider when investing in property is the tax implications that could come with it.

The UK property market is a safe place to invest, offering rather generous tax rules. Unlike other countries, the UK doesn’t discourage foreign investors from purchasing UK property for investment. Tax implications for foreign investors will differ from those for UK investors, and the country you reside in may also have tax rules you may need to follow. 

Highest Yields in the UK
non-residents guide

If you are considering buying a property in the UK as a non-resident, take a look at our guide!

Tax Considerations When Investing in Property in 2024

When investing in the UK property market, the tax considerations can be complex and require careful examination and research. We advise clients to seek professional advice.

When examining tax implications, it’s important to consider your specific situation and goals. Every investor has unique needs, requiring a tailored approach to define their objectives and tax considerations. This will help determine the best approach to purchasing the property, whether within a company, a trust or an individual purchase.

Stamp Duty

Stamp duty, officially known as Stamp Duty Land Tax (SDLT) in the UK, is a tax on purchasing properties or land over a specific value. The rate varies depending on:

  • The purchase price
  • The property type
  • Whether it’s a first home or additional property
  • If you are buying from a Trust or a company 
  • If you are a UK resident or overseas investor 

Stamp Duty Land Tax for UK Residents 

If you’re a UK resident, you will only pay Stamp Duty on properties worth over £250,000. However, if you purchase a second property for personal use or investment, you can expect to add 3% to the Stamp Duty taxes below.

Property Value SDLT rate
Up to £250,000 Zero
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%

Source: Gov.UK – Stamp Duty Land Tax 

Stamp Duty Land Tax for Non-UK Residents 

If you are not from the UK or are not present in the UK for at least 6 months during the 12 months before your purchase of a property, you will be classed as a non-UK resident for Stamp Duty taxes.

The rate of stamp duty for non-UK residents is an increased charge of 2% if purchasing a property within the UK. The additional charge applies to all non-UK resident property transactions, even if you intend to live in the property. This will be regardless of whether you are a first-time buyer of UK residential property. The additional 2% applies when you purchase a freehold or leasehold property above the cost of £40,000.

Annual Tax

Annual Tax on Enveloped Dwellings (ATED) applies to companies or individuals owning properties valued at £500,000 or above, necessitating a property portfolio revaluation every five years. 

Property value Annual charge New annual charge (for 1 April 2023 – 31 March 2024) 
£500,000 – £1 million £3,800 £4,150
£1 million – £2 million £7,700 £8,450
£2 million – £5 million £26,050 £28,650
£5 million – £10 million £60,900 £67,050
£10 million – £20 million £122.250 £134,550
£20 million +  £244,750 £269,450

This tax will apply to you, regardless of whether you are a UK resident or an overseas investor, if you sit within these criteria:

  • The property is in the UK
  • The value of the property is  valued at more than:
    • £2 million (for returns from 2013 to 2014 onwards)
    • £1 million (for returns from 2015 to 2016 onwards)
    • £500,000 (for returns from 2016 to 2017 onwards)
  • The property is owned entirely or partly by a:
    • Company
    • Partnership where either of the partners is a company
    • Collective Investment Scheme (e.g. a unit trust or an open-ended investment vehicle) 

Capital Gains Tax (CGT)

Capital Gains Tax is taxed on any profit you gain from selling a residential property, ranging from 18-20% of the profit. The taxpayer’s UK income determines the percentage charged, so in the 2023/2024 tax year, a £6,000 exemption can be applied. Only the profit is subject to tax, and if your gain is under the tax-free allowance of £6,000, there will be no Capital Gains to pay. 

If you live outside the UK but sell a UK property, you should look into how Capital Gains Tax affects your country of residence. You might have to pay tax on any profit from the sale in your home country. It is always best to seek professional tax advice when selling a property.

Income Tax

Any profit you make from rental income earned on a UK property investment is subject to income tax. The percentage of the income tax you will pay is determined by the profit you make and how much tax-free personal allowance an individual receives. 

Non-UK resident landlords must file an Income Tax Return every year, even if no tax is owed unless HMRC has specifically said it’s not needed. These returns are due by 31 January annually. Non-residents cannot use the HMRC online Tax Return filing software; they must complete a self-assessment and an SA109 form and send them via post. 

The SA109 form is for people who don’t live in the UK but earn money there. The form will need to be filled in, and it asks questions about what kind of money has been made, how much, and any tax breaks you could be entitled to. The form also asks where you reside and how long you were in the UK during the tax year, if at all.

Corporation Tax

If the property has been purchased through a company, you could be subject to corporation tax. This tax is for UK-based companies and foreign companies with UK offices. This is calculated on the company’s profit after deducting expenses like staff salaries and maintenance. The current tax rate is 25%.

Inheritance Tax

If a non-resident owns property in the UK, it may be subject to inheritance tax at varying rates upon the owner’s death, payable by the inheritor. This rule also covers residential properties owned indirectly through a non-UK company or an excluded property trust.

Tax Guidance for Investors in Social Housing Properties

At Yield Investing, we advise anyone looking to invest in buy-to-let social housing to seek professional financial advice before taking further steps. By seeking advice from a professional, you will be armed with all the knowledge you need regarding the taxes and cost implications of your investment or purchase.

Investing in UK Property with Yield Investing 

Selecting the right property investment requires you to understand your goals. Research and consider market trends, rental yields, tax implications and growth potential. The world of UK property investment offers many opportunities for both new and experienced investors, and the market’s stability, potential for rental income, and government support make it a compelling option. While there are challenges, such as initial investment and market volatility, a well-informed and strategic approach can mitigate risks and lead to profitable outcomes.

Yield Investing is here to guide you through your property investment journey, offering expert advice and access to promising investment opportunities. The potential for long-term growth and financial security in the UK property market is within your reach, so if you are ready to explore the world of UK property investment, contact Yield Investing today. We offer personalised advice about investment opportunities and are always here to help you make informed decisions and build a successful property portfolio that aligns with your financial goals.

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