Taxation of Foreign Property Owners in the UK

In 2016, I prepared an article on individual and property taxation in the UK for Abode2.

I reproduce parts of the original article below.

The reproduced original article now shows headings and visa categories were updated to reflect changes made in UK immigration legislation and UK tax code.

With property investment in many locations increasingly linked to residency status, good tax planning is essential and nowhere more so than in the UK.

Residence and Citizenship Based on Investments Made in Property

 

Ten years ago, if you were looking to invest in a bolt-hole in a country where you could automatically qualify for residency, pickings would have been slim.

Today, more than 20 countries offer residency or citizenship through the acquisition of property. Growing wealth in emerging economies, coupled with ease of international travel, banking and communication, have fuelled demand for a new life in foreign climes.

Basic International Tax Rules when Taxing Individuals in a Host Country

 

Nearly every jurisdiction taxes individuals who are resident and non-resident individuals if they source income or capital from that jurisdiction. Those tax systems that are based on citizenship, domicile and residence, tend to tax individuals on their worldwide income and assets. The ultimate right to tax rests with the country where the individual has a permanent home, the centre of vital interests, habitual abode or nationality with presence in the territory for 183 days the standard period of time for residency status to apply. In the case of the UK, the government has a statutory residence test in place to determine qualification as a UK resident. This evaluation comprises three parts: the automatic overseas test, automatic residence test and the sufficient ties test.

Investments in UK Property and Your UK Tax Status

 

An individual who owns a home in the UK qualifies as ‘resident’ under the automatic residence test. Having accommodation available in the UK is considered a ‘tie’ under the sufficient ties test. In both cases - the tax year can be split with the individual found to be non-resident for part of the year and resident for the remainder. The system of taxation is also based on domicile, with three categories in play: domicile of origin (father’s domicile), domicile of dependence (children under the age of 16 or as a married woman married before 1 January 1974), and domicile of choice. A newcomer with no previous ties to the UK can become domiciled in the UK, if the intention is made to remain permanently and sever ties with their country of origin.

More UK Tax and Immigration Changes After 2016

This article was written back in 2016. There were significant changes to the UK Tax code and immigration law.

Taxation of Non-domiciled and non-resident individuals in the UK

 

Individuals who are not domiciled and not resident, but own and let real estate in the UK, incur UK income tax on rental income. Capital gains tax applies only to UK residents if they sell their UK assets. Anti-avoidance provisions apply.

There were sweeping changes that came into force from April 2025. It was decided to get rid of non-domiciled concept for UK tax purposes. Traditionally, UK non-domiciled individuals were resident in the UK and had substantial UK tax exemptions when compared to UK domiciled persons.

Further, it is no longer as easy to opt in or opt out from UK residence on the annual basis as it was before. There is no remittance basis of taxation. Remittance basis of taxation allowed individuals to be taxed on overseas income and capital gains only if these are brought to, or enjoyed, in the UK. Individuals who did not make this claim, were taxed on an arising basis on all worldwide income and capital gains. Long-term residents who claim remittance were liable for remittance charge.

Foreign income and gains (FIG) regime replaced remittance basis of taxation from 6 April 2025. During the first 4 tax years newly resident in the UK will not pay tax on FIG and will be able to bring these funds to the UK free of charge. They will not pay tax on non-resident trust distributions either. They will pay tax on UK income and gains, as is the case for non-domiciled individuals now. 

FIG and your bank accounts

Non-domiciled individuals resident in the UK and using the FIG excepton are advised to maintain separate bank accounts offshore for non-taxable capital, foreign capital gains and foreign income. Failure to do so creates a mixed fund, which results in higher rates of taxation on funds remitted to the UK.

Business investment relief

Non-domiciled individuals resident in the UK who bring funds to the UK for business investment purposes, may claim business investment relief. Any foreign income or gains brought to the UK are treated as not remitted.

UK Inheritance Tax

Under UK inheritance tax rules, an individual who was resident in the UK for at least 17 out of 20 tax years, or if that individual was UK domiciled at any time in the past 3 previous years, is deemed domiciled in the UK. Their worldwide assets will therefore be subject to UK inheritance tax.

Inheritance tax situs rules apply to property located in the UK. Real estate owned by an overseas individual is taxable in the UK even if the individual is not resident and not domiciled in the UK.

No More Investor Visa in the UK 

In the UK, foreign nationals can no longer obtain an investor visa. It was abolished in February 2022.

Innovator Founder visa may be applicable to you if you would like to start a business in the UK. It no longer specifies the investment threshold. However, as an applicant you will need to prove that you have the necessary legally obtained funds. The success of your visa application rests on your business idea approval by the Home Office approved endorsing body.

There are other legal ways to come and live in the UK.

After this article was published, significant changes were made in the UK tax code that affect the taxation of UK real estate held in structures by foreign individuals and investors.

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