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UK Property and Inheritance Tax Thumbnail

UK Property and Inheritance Tax

UK property has long been an attractive investment, not only for British Citizens but also for Singaporeans and other foreign nationals. But the dream of owning a quaint cottage in the tranquil English countryside, generating rental income and growth, can quickly turn into an expensive nightmare if bought without understanding the tax implications. 

Unlike Singapore, the UK taxes a deceased's estate at a rate of 40% above the nil rate band, currently £325,000. If you are British domiciled, very broadly meaning you were born in the UK to UK parents, His Majesties Revenue and Customs (HMRC) will assess your global assets for inheritance tax (IHT). There is often a misconception that once you are a non-UK tax resident, you are no longer liable for UK IHT, when this is unfortunately far from the truth. 

UK inheritance tax also applies to non-UK-domiciled property owners, so even though there is no IHT in Singapore, Singaporeans could find themselves paying up to 40% IHT on their property value to HMRC. This may seem a little unfair when you consider that a non-UK resident will have already paid up to 5% additional stamp duty when buying the property, the property income would have been assessed for UK income tax and had they sold, they would have been a potential UK capital gains tax assessment. 

Let’s take a scenario where Mr & Mrs Sing buy a property in England for £800,000. Mr Sing buys it in his sole name. Mr and Mrs Sing have one son who is ten, and they also own a property in Singapore. 

Stamp Duty. As they already own a property, even though it is in Singapore, they will have to pay standard UK stamp duty, plus additional property stamp duty rate of 3% plus the non-resident stamp duty rate of 2%. This totals £67,500 which is an effective rate of 8.4% 

A year later, Mr Sing passes away without writing a Will; the property is still valued at £800,000. HMRC assess his UK property for UK Inheritance tax, and the executors of his estate need to pay £165,000 in UK inheritance tax (£800,000 - £62,500 - £325,000) x 40%. There’s another problem, as Mr Sing did not have a Will, the UK laws of intestacy (dying without a Will) dictate that Mrs Sing receives the first £275,000 plus half the rest, and their son receives the other half. As their son is only ten, he cannot inherit the money until he is 18, so the money, or property will need to be held in trust until he reaches 18. 

When you look at the net effect of this, their £800,000 dream investment has been taxed £227,500, the executors may have needed to sell to avoid the complicity of a property trust, and Mr and Mrs Sing have lost control of part of their estate, which will now pass to their son when he reaches the age of 18. 

The majority of these issues could have been solved with some simple pre-planning like buying via joint ownership, writing Wills in the UK and Singapore, and simple, non-investment-based life insurance to cover any tax liability. 

The moral of the short story is to always take independent advice from a professional who understands the implications in the country you are buying or investing. Don’t rely on a well-intended sales agent, bank or purchasing solicitor, as their role does not extend to financial matters outside of the purchase.   

This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/  and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.