Changes To Corporation Tax
The number of foreign investors opting to purchase UK rental property increased for the first time since 2010.
Are foreign investors prepared for the imminent tax changes set to be enforced from April 2020?
According to Hamptons International, 11% of UK homes are now let by overseas investors, representing a 4% increase from the 7% total recorded in 2018.
Whilst foreign investors are enjoying a potential property boom at the expense of UK sterling, investors should be aware that more tax changes are on the horizon in the new financial year.
A perceived increase in onerous changes to stamp duty land tax in particular, had deterred a lot of investors. However, a stuttering sterling has meant investors using US dollars as their main currency are now paying £53,065 less than they were in 2014 for an averagely priced property.
Meanwhile house prices have increased by £43,184 from the £191,669 average price paid for a home in 2014 to £234,853 in the present.
Despite property prices increasing by more than a fifth (22.5%) over the past five years, overseas investors have enjoyed reductions in the price of average UK property of 23%.
Unsurprisingly, areas around London have experienced the highest levels of foreign investment with the proportion of foreign London landlords now exceeding 18% of the total figure.
However, tax changes on rental profits are set to change and they could impact investors negatively as the transition takes place.
Currently, profits on rental income is charged at the 20% basic rate of income tax. From 6th April 2020, UK property income will be liable to corporation tax charged at 17%.
This may mean good news for many investors who stand to save even more through the changes.
However, they will mean that processes around calculating taxable profits, compliance procedures and payment timings change significantly in the future. Firms should be ready to comply with these changes.
What will these changes mean for private rental investment? Will the UK rental market continue to see an influx of foreign investors post Brexit?