UK Property attractive – if you can avoid the tax minefield

The looming threat of Brexit and onerous recent legislation has made investing in buy-to-let property in the United Kingdom harder than ever for non-residents – but that shouldn’t deter South Africans looking to grow their wealth and enjoy returns in sterling.

UK real estate remains a popular investment choice for non-residents. The key is to structure the investment as tax-efficiently as possible to maximise profits.

Investing in UK property is not as simple as it used to be, and you need to be aware of the ever-changing tax landscape. But if you can avoid the tax pitfalls, you’ll benefit from a booming buy-to-let market in the UK, with attractive returns.

Since 2012, the UK government has significantly tightened anti-avoidance measures by non-residents. These include higher stamp duty taxes, Annual Tax on Enveloped Dwellings (ATED) and a capital gains tax of 28% on the sale of UK residential property by non-UK residents.

However, it is still possible to use structures to mitigate UK tax on holding or acquiring UK property, whether it be for personal use, investment or development purposes. These involve the use of trusts, UK and foreign companies, and Qualifying Non-UK Pension Schemes (QNUPS).

By setting up a company structure to purchase property, rather than buying in their personal capacities, taxable rental income is only taxed at the fixed rate of 19% (expected to reduce to 17% from April 2020). In contrast, South Africans holding UK property in their own name may find that part of their income is taxed at the 40% tax rate. The risk of exposure to the 40% tax rate has increased by changes to the interest relief rules which mean that interest will not be fully deductible against rental income, for any South African with UK property income subject to the 40% tax rate. Companies are not affected by these changes to interest relief.

Many South Africans include a UK property investment with tax-efficient offshore retirement and succession planning by making use of a Guernsey based QNUPS.

This Guernsey pension structure is, inter alia, able to hold shares in underlying UK or other international company structures, so it makes sense to combine them with UK property investing when appropriate for the client’s needs and domiciliary.

The QNUPS solutions help investors avoid additional taxes levied on discretionary trusts, like UK Inheritance Tax (IHT), which would apply in a succession situation, and the UK’s 10-yearly charge, which can be as high as 6%.

Capital gains tax can be mitigated on a future sale if the QNUPS holds the property through an underlying company. This ensures the rate of tax is reduced to 19% as the company will now be subject to corporation tax on the gain (as noted the tax rate should reduce to 17% for post March 2020 sales).

It’s vital to seek independent tax advice and rely on a trusted financial adviser or property broker when investing in offshore property. UK property investments are a key part of any balanced portfolio, but they can turn into a tax nightmare if you don’t structure them correctly.

Bryony Oostingh is a consultant at independent corporate services provider Sovereign Trust (SA) Limited. Contact her on +27 21 418 2170 or by email

Contact Bryony Oostingh
Get in Touch

Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.