1. Is stamp duty, transfer tax or a similar tax payable on the direct sale, purchase or leasing of real estate? If so, what are the rates and who is required to pay the duty or tax?

Yes, stamp duty land tax (SDLT) is payable on the direct purchase and direct leasing of real estate situated in England and Northern Ireland.

Similar land transaction taxes are payable in Scotland and Wales, based on different rates and charging bands. The rules described below relate to SDLT only.

SDLT is payable by the buyer or tenant on increasing portions of the chargeable consideration, at rates that depend upon the non-residential or residential use of the real estate.

Where two or more real estate transactions between the same person (or persons connected with them) are "linked", the rates apply to the total consideration of all such transactions, such that a higher rate of SDLT may be payable than if the transactions were subject to tax individually.

Non-residential and mixed-use real estate

The current rates of SDLT for acquisitions of non-residential, or mixed-use (i.e., mix of non-residential and residential use) real estate are as follows:

Table A

In relation to leases of non-residential or mixed-use real estate, SDLT is payable on the lease premium at the rates listed in Table A. In the case of new leases (rather than the assignment of an existing lease), SDLT is also payable on the net present value (NPV) of the rent payable over the term of the lease.

The current rates of SDLT for the rent element are as follows:

Table B

Residential real estate

The current default rates of SDLT for acquisitions of residential real estate are as follows:

Table C (rates up to March 31, 2025)

Table D (rates from April 1, 2025)

If the acquisition is of a new leasehold interest, SDLT is payable on the lease premium as per the rates in Tables C and D. If the NPV of the rent payable over the life of the lease is more than £250,000, SDLT is payable at 1% on the portion above £250,000. From April 1, 2025, the threshold value over which the 1% rate will be paid will be reduced to £125,000. Where a lease is assigned, SDLT is payable only on the lease premium.

If a company, partnership with a corporate member or collective investment scheme purchases high-value residential real estate (currently any single dwelling for which consideration of more than £500,000 is given), SDLT is payable at 17% on the entire purchase price. There are, however, reliefs available from the 17% rate, including for high-value residential properties purchased as part of a real estate development, real estate rental or real estate trading business.

If an individual buys residential real estate otherwise than to replace their existing main residence, or if a person who is not an individual acquires residential real estate, the buyer must generally pay a 5% surcharge on each portion of the consideration or lease premium paid, in addition to the default rates noted above.

If a buyer of residential real estate is not resident in the UK, or is a UK-resident company controlled by non-UK resident persons, a 2% surcharge is also generally payable on each portion of the consideration or lease premium paid, in addition to the default rates (and, if applicable, the surcharge rates) noted above.

2. Is stamp duty, transfer tax or a similar tax payable on the indirect sale or purchase of real estate, e.g., by means of the sale of an SPV which holds real estate in the jurisdiction? If so, what are the rates and who is required to pay the duty or tax?

The stamp duty and SDLT implications of an indirect purchase of UK real estate will depend on the type of indirect real estate holding structure. The most common structures of holding UK real estate involve the use of a UK- or non-UK incorporated limited company (including a UK real estate investment trust (REIT)), offshore unit trust, or UK- or non-UK partnership.

Stamp duty or stamp duty reserve tax (SDRT) (at a rate of 0.5%) is generally payable if UK real estate is purchased via the acquisition of shares in a UK-incorporated company. Ordinarily, neither stamp duty nor SDRT is payable in respect of a transfer of shares in a non-UK incorporated company. No SDLT or other UK land transaction tax is payable on the transfer of shares in a UK- or non-UK incorporated company.

Provided that the unit trust is a collective investment scheme, no stamp duty or SDRT, or SDLT or other UK land transaction tax, is payable on a transfer of units in an offshore unit trust.

SDLT is chargeable on the transfer of a partnership interest in a UK partnership (including limited partnerships and limited liability partnerships established in the UK), and in a non-UK partnership of a similar character, which holds real estate in England or Northern Ireland and whose sole or main activity is investing or dealing in real estate in those jurisdictions. A similar rule applies under the land transaction tax legislation of Scotland and Wales.

Stamp duty may also be payable on the transfer of a partnership interest if the partnership holds shares or marketable securities.

3. Is value added tax, goods and services tax or a similar tax payable on the sale or purchase of real estate, and the letting of real estate? If so, what are the rates and who is required to pay the tax?

Supplies of interests in land or buildings are generally exempt supplies for VAT purposes, subject to certain exceptions, and depending on whether the real estate is non-residential or residential.

No VAT is chargeable on the supply of the assets of a business where that business is transferred as a going concern (a TOGC), in which case the totality of transferred assets will be treated as neither a supply of assets nor goods, so long as:

• in the case where the transferor is registered (or required to be registered) for VAT in the UK, the transferee is also registered (or required to be registered, whether as a consequence of the transfer or otherwise) for VAT in the UK;
• the business is capable of being carried on as an independent economic activity; and
• the transferee intends to use the assets in the same kind of business as carried on by the transferor.

If the UK real estate sold or purchased is rented at the time of disposal, the transfer is likely to be considered a TOGC, and hence not subject to VAT.

Where an exception applies, the supply may be standard or zero-rated, depending on the type of real estate.

The main exceptions, which are standard-rated at the current rate of 20%, are:

• the sale of a freehold interest in an uncompleted non-residential building;
• the sale of a freehold interest in a non-residential building completed less than three years before the sale; and
• any supply of an interest in land or buildings where an option to tax has been exercised by the supplier in relation to such land and has not been revoked.

A landlord of a non-residential building who intends to make exempt supplies of the real estate, and who would therefore not be able to recover any VAT incurred in making those supplies, may "opt to tax" the real estate so that it charges an amount of VAT at the standard 20% rate and can recover the VAT incurred on costs relating to its supplies of the real estate. On the basis that the real estate supplied to tenants is predominantly non-residential, there should generally be no restrictions to input tax recovery for the landlord.

The sale by a developer of a new residential building, or of a building which has been converted from non-residential into residential use, may be eligible to be treated as a zero-rated supply. If the relevant conditions are satisfied, the seller need not charge VAT, but can generally recover the VAT it has incurred in making that supply, including VAT incurred on the costs of construction or conversion.

4. Are there any annual taxes that may be payable on the ownership of real estate, e.g., annual land tax, municipal taxes, surtaxes, etc.?

There is an annual tax on enveloped dwellings (ATED) payable in relation to each day that a corporate entity holds UK residential real estate valued at more than £500,000. The annual charges with effect from 1 April 2025 will be as follows:

Table E

Similar to the 17% SDLT charge on high value residential real estate, there are reliefs available for (among others) real estate rental businesses, real estate development trades and real estate dealers.

ATED does not apply to UK residential real estate held directly by individuals or to UK non-residential real estate.

5. What is the tax rate imposed on rental income?

UK companies are subject to corporation tax on the profits of their worldwide real estate rental business, which is currently chargeable at a main rate of 25%.

Non-resident corporate landlords are subject to corporation tax at the above rate on the profits of their UK real estate rental business. UK letting agents (or, in certain cases, tenants) are required to deduct the basic rate of income tax from rental payments unless the non-resident landlord has applied to and been approved by the UK tax authority (His Majesty's Revenue and Customs, or HMRC) under the Non-Resident Landlord Scheme (NRLS) to receive payments of rent gross.

Individuals are subject to income tax on rental profits charged on a progressive scale, which currently ranges from 20% for basic rate taxpayers to 45% for additional rate taxpayers. Individuals resident for tax purposes in Scotland are subject to income tax at rates ranging from 19% to 48%.

Non-residents that are subject to tax on UK rental income in their country of residence may be able to claim tax credit relief under the terms of an applicable double taxation agreement with the UK. 

6. Is interest on borrowings used to acquire real estate deductible for tax purposes against rental income? If so, are there any restrictions, such as thin capitalization, transfer pricing or interest limitation rules? Is there any withholding tax on the interest?

UK companies and non-resident corporate entities are generally entitled, for corporation tax purposes, to deduct interest on borrowings used to acquire UK real estate against other profits (either income or capital), subject to certain restrictions.

Both UK companies and non-resident corporate entities are subject to restrictions including the UK's corporate interest restriction, hybrid mismatch rules and transfer pricing rules.

Corporate interest restriction

The UK corporate interest restriction limits deductions for finance expense by reference to a fixed and group interest-to-EBITDA (earnings before interest, tax, depreciation and amortisation) ratio.

The restriction follows recommendations by the Organisation for Economic Cooperation and Development's (OECD) BEPS project in October 2015 and a UK government consultation from 2015 to 2016. It includes two formal ratio rules, the Fixed Ratio Rule and the Group Ratio Rule. It also retains a modified form of the previous Worldwide Debt Cap.

Broadly, the Fixed Ratio Rule permits tax deductions for UK net interest expenses up to the amount of 30% of the UK group's taxable EBITDA. The UK group may allocate restricted interest between group companies. The restricted interest may be carried forward and deducted in future years if there is sufficient capacity within the 30% limit, and spare capacity may be carried forward and used in subsequent periods for up to five years. This means that if a group has insufficient capacity in the early years of a project, it may claim deductions when it makes a profit.

The Group Ratio Rule provides relief for groups with third-party interest expenses above the fixed ratio, by allowing interest deductions for UK net interest expenses up to the amount of the group's ratio of worldwide net interest expense to worldwide EBITDA, capped at a maximum ratio of 100% of EBITDA.

The Modified Debt Cap broadly applies to restrict interest deductions to the extent that the UK net interest expense exceeds the worldwide group's total external interest expense. In this way, the Modified Debt Cap applies to ensure that any groups which have little external debt, who would therefore be caught by the previous Worldwide Debt Cap, are unable to take advantage of the Fixed Ratio Rule by gearing up to 30% of the UK group's EBITDA.

Overriding the restriction rules is a £2 million annual interest allowance. This is significant as it ensures that the UK group may deduct £2 million of net interest expense each year, irrespective of whether it is in breach of the Fixed Ratio Rule, Group Ratio Rule or the Modified Debt Cap. This is intended to assist small businesses but in fact assists any business that has net interest expense. It remains to be seen whether the £2 million allowance will be increased to take account of increases in interest rates since the restriction was introduced.

Hybrid mismatch rules

The UK hybrid mismatch rules are intended to implement the OECD's final recommendations on BEPS Action 2.

One aim of the rules is to disallow a deduction of interest, for corporation tax purposes, where the interest is deductible in the UK without a corresponding amount of income being taxable for another person (known as a "deduction/non-inclusion" mismatch). The rules may also apply where interest is deductible from more than one person's income or for the purposes of more than one tax (a "double deduction" mismatch).

Some of the scenarios in which a mismatch may arise include shareholder loans, Luxembourg financing structures, UK companies with overseas permanent establishments, companies operating through a UK permanent establishment and US "check the box" regime and hybrid entities. For example, there is a risk that a UK payer of interest that is "checked open" for US tax purposes may be entitled to a tax deduction in the UK for its interest expense, without a corresponding amount of income being taxable in the US, as the payment is ignored.

Where the conditions for a deduction/ non-inclusion mismatch are met, the mismatch is counteracted by denying the UK deduction. However, the rules provide potential relief, as the amount of the restricted deduction may be allowed as a deduction from any "dual inclusion" income of the hybrid payer. Broadly, dual inclusion income means income that arises in connection with the loan arrangement and is both ordinary income of the UK payer for corporation tax purposes and ordinary income of the offshore payee for the offshore country's tax purposes. The restricted deduction is set first against dual inclusion income arising in the same accounting period, with unused amounts carried forward to later accounting periods.

For mismatches resulting in a deduction offshore with no corresponding income in the UK, the counteraction would be to treat the amount of the interest income as taxable income in the UK.

Transfer pricing

The UK's transfer pricing rules can limit the deductibility of interest on a loan, particularly where the loan-to-value ratio (LTV) or the interest rate margin is excessive. There is no single test to determine whether a company is in breach of the rules. Instead, the UK applies the arm's length principle pursuant to which HMRC can treat the terms of the actual transaction as having instead taken place on independent, arm's length terms. As a result of this principle, a company's liability may be adjusted. For example, if the interest rate is excessive then the deduction for interest payments in excess of the arm's length rate may be denied.

Loans from third-party providers (such as bank loans) will generally be considered to be on arm’s length terms, as they are negotiated between unconnected parties in the course of a commercial transaction, and so should not be subject to any transfer pricing adjustments. However, if guarantees are given by entities within the group, this will need to be taken into account.

The UK transfer pricing rules may apply to shareholder loans if the shareholder loans have non-arm's length terms that reduce the UK tax liability of an entity. In particular, the UK rules may apply to deny the tax deduction for interest payments if (i) the LTV is greater than a normal third-party loan or a loan would not be made at all at arm's length; or (ii) the interest rate margin exceeds an arm's length amount (or other terms are agreed that would not be agreed at arm's length).

In these instances, there is an element of subjectivity as to what is an appropriate LTV and what is an excessive rate of interest. It is necessary to gather objective evidence to justify the interest deductions and this is generally done in one of three ways, depending on the complexity of the arrangements: (i) entering into an advance agreement with HMRC; (ii) benchmarking the proposed structure usually by an internally produced economic analysis; or (iii) commissioning a report by a third-party transfer pricing specialist.

Other restrictions

Corporation tax rules connected with tax avoidance might also be applied, including in particular the "unallowable purpose" rule which can apply to disallow debits or reduce credits if a loan has a tax avoidance purpose. Although the rule has been a feature of the UK tax code for some time, it is seen by HMRC as an increasingly important tool for challenging certain financing structures.

UK withholding tax on interest may be payable at a rate of 20% if the loan is intended to continue for at least one year and the interest payable on the loan is deemed to have a UK source.

Whether interest has a UK source depends on a number of criteria. The key factors to consider are the residence of the debtor, the place of performance of the contract, the method of payment, the governing law of the contract and jurisdiction for proper enforcement, the residence of any guarantor and location of any security. HMRC’s view is that the residence of the debtor is the most important criterion, together with the location of the debtor’s assets, because this is where a creditor would usually seek to enforce a debt. When determining the residence of a debtor, it is necessary to look at where their main seat of business or centre of activity is, or other form of principal establishment (not the same as tax residence).

An exemption from interest withholding tax may be available if the lender qualifies for a domestic exemption (e.g., if it lends through a London branch and is therefore within the scope of UK corporation tax), or if the lender is eligible under a relevant double taxation agreement to receive interest payments gross.

7. Are deductions for capital expenditure available against rental income for tax purposes, for example capital allowances or deductions for depreciation? If so, are deductions available for expenditure on both land and buildings, or on buildings only?

Capital allowances may be claimed on qualifying capital expenditure incurred on assets to be used wholly or partly for the purposes of a taxable business. Allowances may be claimed in respect of both new and second-hand assets and provide tax relief for the depreciation of those assets.

Capital allowances are available for most fixed and moveable plant and machinery, for which the default allowance is 18% per year on a reducing balance basis. Certain "special rate" plant and machinery (including integral features such as electrical systems, lifts and escalators) attracts a reduced rate of writing down allowance of 6% per year.

Enhanced allowances may be available for certain types of expenditure. For example, under the full-expensing regime introduced in 2023, UK-resident companies and other entities subject to corporation tax may obtain a deduction for the full cost of new plant and machinery in the year in which the expenditure is incurred (reduced to 50% for special rate expenditure), unless the plant and machinery has been acquired for leasing. 

A person who has claimed capital allowances on an item of plant or machinery must bring into account a disposal value when the item is sold (and in certain other circumstances). The person may be liable for a "balancing charge" if the disposal exceeds the tax written down value of the item.

The availability of capital allowances on fixed plant and machinery may be restricted by reference to the allowances claimed and disposal values brought into account by previous owners of the real estate. 

Except where it relates to fixed plant or machinery, capital expenditure incurred in respect of the construction, renovation or conversion of a building will not generally be eligible for plant and machinery allowances. Such expenditure may however be eligible for the structures and buildings allowance, to the extent that it is incurred in respect of a non-residential building pursuant to a contract entered into on or after October 29, 2018. Where available, the structures and buildings allowance is given at a fixed rate of 3% per year. Any unclaimed allowance may be transferred to the buyer when the building is sold. 

8. Are there any other material restrictions on the costs and expenses which may be deducted in calculating a person's taxable rental income, e.g., transfer pricing or anti-hybrid rules?

As a general rule:

• costs and expenses may be deducted in calculating a person's taxable rental profits only if they have been wholly and exclusively incurred for the purposes of the person's rental business, and
• except to the extent they are eligible for capital allowances, costs and expenses of a capital nature are not generally deductible in calculating taxable rental profits.

The transfer pricing and anti-hybrid rules outlined in question 6, above, are applicable not only to interest and other financing expenses, but also to the other costs and expenses a person may incur in the course of carrying on a real estate letting business.

9. Are there any restrictions on the use, and/or carry forward, of losses?

UK-resident companies and other entities subject to corporation tax must set off the losses of a real estate rental business against their total profits subject to corporation tax (from whatever source) in the accounting period in which the losses arise, following which any unrelieved losses may be carried forward and set off against total profits arising in subsequent accounting periods, provided that the entity continues to carry on the real estate rental business. 

If a loss derives from a real estate development or other trading activity, the loss may in addition be set off against total profits arising in accounting periods falling wholly or partly within the period of 12 months prior to start of the accounting period in which the loss arises.

Carried-forward losses arising on or after April 1, 2017 can be set off against the profits of other companies within a corporation tax group. Coupled with this flexibility, however, is a restriction to limit the amount of the set-off in each year to £5 million plus 50% of group profits exceeding £5 million. These restrictions apply to all existing and future carried-forward losses, not just those arising on or after April 1, 2017.

For pre-April 2017 carried-forward losses, therefore, there is no flexibility to set off losses against profits of other group members, and they are subject to the 50% limitation from April 1, 2017. Carried-forward losses arising from April 1, 2017, however, can be used flexibly among UK group members, subject to the 50% restriction on profits exceeding £5 million, calculated on a group-wide basis.

Capital losses arising on a disposal of real estate must be set off against capital gains (from whatever source) arising in the same accounting period, following which any unrelieved losses may be carried forward and set off against gains arising in future accounting periods. 

From 1 April, 2020, the restriction for carried-forward losses was extended to the set-off of capital losses against capital gains. For periods from 1 April, 2020, companies are therefore required to allocate their £5 million deductions allowance among their trading profits, non-trading income profits and capital gains.

10. Are capital gains arising on the direct sale of real estate taxable? If so, what are the rates and are there any exemptions?

UK companies are subject to corporation tax (at 25%) on their business profits, which includes capital gains from the direct disposal of real estate, wherever situated.

Non-UK resident companies are subject to corporation tax on capital gains arising on the disposal of direct interests in UK real estate. 

In either case, group relief may be available for transfers of real estate between 75% group companies such that the transfer is made on a no gain/no loss basis. In addition, non-UK collective investment vehicles satisfying certain conditions may be entitled to make an exemption election, exempting them from UK taxes on gains deriving from the disposal of interests in UK real estate held directly or indirectly by them, with tax instead accounted for at investor level.

UK-resident individuals are subject to capital gains tax (CGT) at 18% or 24% on the direct sale of real estate, depending on their level of taxable income in the relevant tax year. Individuals and trusts benefit from an annual exempt amount (£3,000 for individuals and £1,500 for most trustees for the 2024-2025 tax year). No CGT charge arises if a UK individual disposes of their only or main residence.

Non-resident individuals disposing of UK real estate are subject to non-resident capital gains tax (NRCGT). NRCGT is chargeable at the same rates as for UK-resident individuals (depending on their level of total taxable income and gains in the relevant tax year) and 24% for trustees. As with UK CGT, principal private residence relief should negate any NRCGT that would otherwise be payable for an individual disposing of their only or main residence, although it may be necessary for the individual to satisfy a day-count test in order to qualify for the relief.

11. Are capital gains arising on the indirect sale of real estate taxable, e.g., by means of the sale of an SPV which holds real estate in the jurisdiction? If so, what are the rates and are there any exemptions?

Capital gains arising from the indirect sale of UK real estate may be taxable in the UK.

A UK-resident company is subject to corporation tax, and a UK-resident individual is subject to CGT, on their worldwide gains, including gains derived from the disposal of shares in a UK-resident or non-UK resident company which holds an interest in real estate. 

A non-UK resident person is subject to UK taxes on gains from the disposal of an asset if:

• the asset derives at least 75% of its value from UK real estate, and
• the non-UK resident person has a substantial indirect interest in the real estate.

As a general rule, a non-UK resident person is treated as having a substantial indirect interest in UK real estate only if they (together with any persons connected with them) hold an interest of 25% or more in the entity through which the real estate is held. By way of exception, non-UK resident persons holding an interest in certain collective investment vehicles are deemed to hold a substantial indirect interest regardless of the size of their holding. 

An exemption from the charge on non-UK resident persons may be available if all of the relevant interests in real estate are used for trading purposes or if the disposal is linked to another indirect disposal and the 75% test is not met when aggregating the assets of the companies.

More generally, a UK-resident or non-UK resident person may be entitled to claim the substantial shareholding exemption (the UK's participation exemption for the disposal of equity) if the entity disposed of is a stand-alone trading company or the holding company of a trading group. The exemption may also be available in whole or in part on the disposal of a non-trading entity or group which is held indirectly by certain classes of institutional investor, including sovereign wealth funds, pension schemes and certain widely-held fund vehicles.

Indirect disposals of UK real estate by a non-UK collective investment vehicle which has made an exemption election (or by entities within its group) are generally exempt from UK taxes on capital gains. 

The normal corporation tax and CGT rates apply to gains arising on an indirect disposal.

12. Is there a withholding tax on rental income?

Under the NRLS, non-resident landlords are subject to withholding tax at the basic rate (20%) on rental income received from UK real estate. Such non-resident landlords may apply for the rental income to be paid gross, provided that they have a clean UK tax compliance record. While this may give rise to a cash flow benefit, such landlords will nonetheless continue to be subject to UK taxes on their UK rental profits.

13. Is there a withholding tax on capital gains derived from real estate? If so, does the withholding tax apply to both direct and indirect sales, or to direct sales only?

No withholding tax is imposed in the UK on capital gains deriving from UK real estate, whether disposed of directly or indirectly.

14. Does the jurisdiction have a REIT regime? If so, please outline the tax treatment of REIT and the main conditions that must be satisfied to enter and remain within the regime.

Yes, the UK does have a REIT regime. The UK REIT regime allows companies that carry on a real estate rental business and which satisfy certain conditions to benefit from a tax-efficient regime for closed-ended funds.

Where the qualifying conditions are satisfied, a REIT (whether a stand-alone company or a group REIT) is exempt from UK corporation tax on income and gains from its qualifying rental business. Property income distributions by the REIT are generally subject to corporation or income tax in the hands of shareholders, and by default are paid under deduction of withholding tax at a rate of 20% (although exemption from withholding is available for certain types of shareholder).

The following are the main conditions under which a company may enter and remain in the UK REIT regime. The company (or the parent company in the case of a group REIT) must:

• be tax resident solely in the UK;
• not be an open-ended investment company;
• have its ordinary shares admitted to trading on a recognised stock exchange or be at least 70% owned directly or indirectly by one or more institutional investors;
• not be a close company;
• have only one class of ordinary share capital in issue;
• not be party to a loan with specific restricted characteristics;
• hold at least three properties for the purposes of its property rental business (none of which may represent more than 40% of the total value of the properties involved in its rental business), or at least one property with a value of at least £20 million;
• derive at least 75% of its profits, and at least 75% of the value of its assets, from its property rental business; and
• distribute at least 90% of the profits of its property rental business annually.

15. Apart from REITs, are there any other tax-efficient real estate investment vehicles or structures which are commonly used to acquire, hold and exploit real estate in the jurisdiction?

Jersey property unit trusts (JPUTs) are frequently used to acquire and hold interests in UK commercial real estate. The main advantage is that they provide transparency for income tax purposes, provided the trust deed is drafted as a "Baker" trust that gives unitholders entitlement to their share of the income of the trust as and when it arises, and they can be treated as either transparent or opaque for UK capital gains purposes.

In relation to residential real estate, companies were often used to hold UK real estate. However, with the introduction of the higher rate SDLT charge and ATED charges on enveloped UK real estate, this has now become less tax-efficient.

16. Are there any structures commonly used to mitigate real estate tax liabilities on acquiring and/or disposing of real estate?

It is common for UK commercial real estate to be owned by an offshore special purpose vehicle (in jurisdictions such as Jersey, BVI and Luxembourg). The principal reason for this is that the acquisition of an offshore vehicle holding UK real estate is generally free from UK land transaction taxes, stamp duty and SDRT. This brings a c.5% reduction in acquisition costs for the buyer. The use of a non-UK entity may also assist in eliminating withholding taxes on shareholder finance. 

It is therefore common in the UK market for a sale of commercial real estate to be structured as a sale of the company or unit trust owning the asset, with the buyer and seller negotiating who obtains the benefit of the land transaction tax saving.

Acquiring a real estate-owning company means that the buyer will assume responsibility for any historical liabilities (tax or otherwise) of the target company.

It is therefore common in the UK market for full due diligence of the company to be carried out and indemnities and warranties to be given on the sale of the company. More often than not, a warranty and indemnity insurance policy is obtained, which at least in theory should allow the seller to have a "clean break", without the need to stand behind the warranties and indemnities.

While similar issues arise on the acquisition of a unit trust, its transparency for the purposes of taxes on income (and, in many cases, for the purposes of capital gains taxes) should mean that historical liabilities for direct taxes generally remain with the unit sellers.

17. Are there any material differences in the way individuals and companies are taxed on acquiring, letting and/or disposing of real estate?

While the SDLT rules relating to the acquisition of non-residential real estate apply in broadly the same way to individual and non-individual purchasers, there are a number of material differences in the rules as they apply to residential real estate. In particular, individual purchasers have no liability for the fixed 17% charge, nor are they automatically liable for the 5% surcharge, unless (in broad terms) they are purchasing a second home or buy-to-let property. The differences are less pronounced in Scotland and Wales, since neither land transaction tax regime has an equivalent of the fixed 17% charge. 

Individuals have no liability for the ATED charge described in question 4, above.

The profits of a letting business are subject to income tax in the hands of individuals and corporation tax in the hands of companies and other corporate entities. While there is still a considerable overlap, the taxes have increasingly diverged in recent years. For example, the income tax regime has no equivalent of the corporate interest restriction or anti-hybrid rules, gives relief for finance expenses on a different basis and has different rules for the utilisation of losses. There also remains a material difference between the highest rates of income tax and corporation tax. 

On a disposal, individuals are liable for CGT on any gain arising, while companies and other corporate entities are liable for corporation tax. While the corporation tax regime largely follows the CGT rules, there are certain differences: as well as the difference in rates outlined in question 10, above, individuals may be entitled to reliefs not available to corporates (and vice versa), while the CGT regime has no limitation on the utilisation of carried forward capital losses. 

This guide does not constitute tax advice and readers should note that the laws of each jurisdiction are regularly refined and/or revised, so the statements made in this report are not definitive. However, this guide does provide a summary overview of the state of the law as at 31 January 2025 and will hopefully serve as a useful tool for investors to ensure they understand the unique provisions and distinctions in the various jurisdictions.