Any kind of property that has buildings and natural resources such as water and minerals and is meant for either residential or business purposes is known as real estate. Anyone who owns a property or real estate has to pay the real estate tax in almost all the countries including the United Kingdom. There are certain laws about it which specify the requirements of real estate in each country and everybody has to abide by those laws.

Real estate is divided into many categories that have different characteristics and are meant for different purposes and there are a number of real estate agencies in operation meant only for this. Some of the examples of real estate are given below:

  • An apartment or flat
  • Multi-family house
  • A house with a terrace
  • Single family house
  • Two houses sharing the same wall
  • Mobile homes such as caravans
  • Villas
  • Mansions

All of the above relate to different categories of real estate and there are different kinds of taxes that are meant for every one of them. To get a better understanding of the real estate taxes in the UK, let’s take a look at real estate laws first.

Real estate laws in the UK

Although much legislation exists there are only two laws that mainly govern the real estate in the UK. These two laws are;

These two acts are the pillars of the real estate system in the UK and they specify every single thing that might concern the real estate buyers or sellers. They provide all the information about all the aspects of real estate such as the process of buying or selling, registration, applicable fees, taxes, and every other matter.

Understanding different kind of taxes on real estate in the UK

Before you decide to buy land or real estate in the UK you need to consult with an expert advisor as early as possible. He will inform you all about the taxes and their costs and what will be the final amount of money that you will need to spend on buying a piece of land. There are different scenarios for different kind of people, for example, if you are buying real estate in the UK for this first time and you don’t own any land or real estate in other countries, taxes will be different from the ones who already own a property in the same country or other countries. The taxes that you will be required to pay are given below.

Applicable land tax or stamp duty

Anyone who buys property in the UK has to pay the land tax. If you buy a property of £125,000 or less then there is no applicable stamp duty but if the property that you are buying exceeds this limit then you will have to pay stamp duty. If you buy a property ranging from £125,001 to £250,000 then the applicable land tax will be 2%, 5% on £250,001-£925,000, 10% on £925,001-£1,500,000 and 12% on more than £1,500,000. The calculation is carried out in a way that if you buy a property of £225,000 then there will be no application fee up to £125,000 but you will have to pay 2% tax between £125,001 and £225,000 so the amount that you will pay will be £2000.

If you are buying a property and you already own then an extra 3% tax will be applicable.

Annual tax

The annual tax is applicable only to those who own a residential area and have a company or an enterprise. The applicable tax will be £15,000 between £2million and £5million, £35,000 between £5million and £10million, £70,000 between £10million and £20million, and £140,000 on anything more than £20million.

Income tax

If you are a UK resident and you own a residential property and you rent it out when the income tax will be applicable on this property which will be up to 45%. If you are a non-UK resident then the income tax will be limited to 20%.

Capital gain tax

Up to 48% of the Capital gain tax is applicable if you own a property and you decide to sell it. CGT will only be applicable to the amount that you gained which is the difference between the buying price and all the money you spent renovating it and the price that you got selling it. If you are not a UK resident then these taxes will not be applicable to you.

Inheritance tax

If you own a property of more than £325,000 and in the case of your death your children will be required to pay 40% tax as inheritance tax. This tax will only be applicable to the difference between £325,000 and the total price of the assets. If you are not a UK resident then you might be able to avoid it all along.

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