Taxes Payable When Buying a Property in the UK
Taxes Payable When Buying a Property in the UK
Owning a property in the UK presents a valuable opportunity for both those planning for long-term residence and those pursuing investment goals. For foreign investors seeking income in foreign currency, the UK stands out with its stable rental returns and strong property ownership security. However, before entering this process, understanding the tax obligations associated with property purchases is crucial for accurate cost planning.
Taxes payable when buying a property in the UK range from stamp duty to income and capital gains taxes, and they have a direct impact on investment decisions.
Stamp Duty Land Tax (SDLT)
The primary tax payable when purchasing a property in the UK is known as Stamp Duty Land Tax (SDLT). This tax varies depending on the property’s purchase price and the buyer’s circumstances.
As of 1 April 2025, the standard SDLT rates are as follows:
- £0 – £125,000: 0%
- £125,001 – £250,000: 2%
- £250,001 – £925,000: 5%
- £925,001 – £1,500,000: 10%
- Over £1,500,000: 12%
These rates apply to buyers purchasing a property as their main residence.
SDLT Relief for First-Time Buyers (2025)
A more favourable SDLT relief applies for first-time buyers:
£0 – £300,000: 0%
£300,001 – £500,000: 5% on the portion above £300,000
Over £500,000: No relief; standard rates apply
This relief is available only to individuals purchasing their first home to be used as their main residence.
Additional Stamp Duty (SDLT) for Second Homes and Non-Resident Investors
Individuals purchasing a second property in the UK are required to pay an additional 3% stamp duty on top of the standard SDLT rates. This surcharge applies to all additional residential properties valued over £40,000, regardless of their intended use.
In addition, a 2% surcharge applies to non-resident buyers, regardless of whether the property will be used as a main residence or not.
Both surcharges are added on top of the standard SDLT bands. As a result, a non-resident purchasing a second home in the UK may be subject to up to 5% in additional stamp duty. In some cases, the total tax liability can reach up to 15%.
The buyer’s residency status and the intended use of the property directly impact the amount of tax payable. Therefore, seeking professional advice before the purchase is essential to minimise financial risk.
Capital Gains Tax (CGT)
When you buy a property in the UK and later sell it, you may be required to pay Capital Gains Tax (CGT) on the profit made. This tax typically applies to properties that are not your primary residence, such as second homes or investment properties.
As of the 2025/26 tax year, the first £3,000 of capital gains is tax-free (annual exemption). Gains above this threshold are taxed based on the individual’s income bracket:
18% for basic rate taxpayers
24% for higher or additional rate taxpayers
If the property was used as your main residence and certain conditions are met, you may qualify for Private Residence Relief, which can reduce or eliminate your CGT liability. This relief can exempt part or all of the gain from taxation upon the sale of the property.
Income Tax on Rental Income
Rental income generated from investment properties in the UK is subject to Income Tax. This income is added to the individual’s total annual income and taxed accordingly.
As of the 2025/26 tax year, income tax bands are as follows:
Up to £12,570: 0% (personal allowance)
£12,571 – £50,270: 20% (basic rate)
£50,271 – £125,140: 40% (higher rate)
£125,141 and above: 45% (additional rate)
Tax is calculated on net rental income, which is the gross rental income minus allowable expenses. Deductible expenses may include maintenance and repair costs, property management fees, certain types of insurance, and other expenses directly related to the rental property.
However, mortgage interest payments can no longer be fully deducted as an expense. Instead, a 20% tax credit is applied to the interest paid. This rule has been in effect since 2020 and continues to apply in 2025.
Non-resident investors are also subject to UK Income Tax on rental income earned within the UK. This income must be declared to HMRC, and in some cases, tax may be withheld under the Non-Resident Landlord Scheme (NRLS).
Additional Costs Involved in the Property Purchase Process
In addition to Stamp Duty Land Tax (SDLT), there are various additional costs associated with purchasing a property in the UK that should be factored into investment planning. These expenses can have a direct impact on the overall budget and must be carefully considered before the transaction.
As of 2025, common additional costs during the property purchase process include:
Solicitor or conveyancer fees (legal/property transfer services)
Land Registry fees
Valuation and, if necessary, survey fees
Mortgage application and processing fees (if financing is involved)
Home insurance, moving costs, and initial setup expenses for the property
These costs typically range from 1% to 1.5% of the property’s value, though this may vary depending on the type of property, scope of services received, and the financing method used. In particular, mortgage products may incur additional charges such as lender fees, required insurances, or documentation costs.
Therefore, carefully researching and planning for these additional expenses in advance is essential to avoid unexpected costs and to manage the investment budget effectively.
How Are Tax Processes Managed?
When investing in real estate in the UK, selecting the right property is important—but effectively managing the tax process is equally critical to the success of the investment. Alliance Real Estate provides guidance on the tax obligations investors may encounter during the acquisition process and offers support at every stage of the transaction.
As of 2025, Stamp Duty Land Tax (SDLT) rates vary depending on the buyer’s status, with additional surcharges applied for second home purchases and non-resident investors. Furthermore, income earned from investment properties is subject to annual income tax, which must be accurately declared. Alliance Real Estate helps investors navigate such complex situations by ensuring accurate tax calculations, proper reporting, and the evaluation of potential tax advantages.
In addition, when curating its portfolio, Alliance Real Estate considers not only location, architectural quality, and rental return, but also legal approvals and potential tax benefits available to investors. This approach enables clients to focus not just on immediate returns, but also on long-term financial sustainability.
Frequently Asked Questions (FAQ)
Stamp Duty Land Tax (SDLT) is paid. An additional 3% applies for second homes, and a 2% surcharge applies for foreign investors.
There is a tax exemption on purchases up to £425,000. A 5% tax applies to the portion between £425,001 and £625,000. Amounts above this are not eligible for the exemption.
An additional 3% ‘additional property’ tax is applied on top of the standard rate (for properties worth at least £40,000).
Yes. A 2% additional Stamp Duty is charged for individuals who are not residents of the UK.
Yes. Net rental income is subject to income tax. There is a tax-free allowance of up to £12,570.
Capital Gains Tax (CGT) applies to the sale of properties that are not the main residence. The first £3,000 is exempt from tax. The remaining amount is taxed between 18% and 24%.
There may be additional costs such as solicitor fees, land registry fees, valuation fees, mortgage arrangement fees, insurance, and moving expenses.
