Five UK Real Estate Tax Pitfalls International Investors must avoid in 2025

The UK continues to be a strategic target for international real estate investment. However, from April 2025, a series of significant tax reforms have come into force which materially affect overseas buyers, corporate structures, and high-value property holders. The rules now reflect a sharper policy shift: from incentivising inward investment to tightening revenue collection and transparency across ownership types.

For private investors, family offices, and corporates involved in mid-cap acquisitions (£5 million to £50 million), failure to keep pace with these changes can result in unforeseen tax liabilities and compliance risks.

Below, we highlight five key tax risks and outline the steps that international investors should implement to remain compliant and tax efficient.

1. Stamp Duty Land Tax (SDLT): reduction in the Nil-Rate Band and impact of surcharges

From 1 April 2025, the temporary nil-rate threshold of £250 000 for a main residence has reverted to £125 000, reinstating a five-band SDLT structure:

• 0 % on the first £125 000,
• 2 % on £125 001–£250 000,
• 5 % on £250 001–£925 000,
• 10 % on £925 001–£1 500 000,
• 12 % on any amount above £1 500 000.

Non-resident investors must factor in an additional 2% SDLT surcharge, while buyers acquiring second homes (including corporate buyers) are also subject to a 5% surcharge on top of the standard rates.

Implications:
Many international buyers’ base forecasts on historic or headline rates. A residential purchase at , for example, can now attract SDLT of £2 713 750 (standard rates plus a 2 % non-resident surcharge), rising to £3 713 750 if the 5 % Additional Dwelling Supplement applies.

Recommended actions:

• Reassess current budgets, especially where offers were made or financing arranged prior to April 2025.
• Review whether transitional reliefs apply, particularly if exchange occurred before 1 April.
• Ensure all SDLT returns are filed and taxes paid within 14 days of completion to avoid penalties.

2. Capital Gains Tax: Reduced exemptions and recalibrated reliefs

The CGT landscape has become increasingly complex to non-resident property investors. The annual exempt amount has now halved again and stands at just £3,000 for the 2025/26 tax year – down from £12,300 in 2022/23. This is the amount of gain an individual can realise before CGT becomes payable.

Gains from UK residential property continue to attract 18% or 24% CGT, depending on the taxpayer’s UK tax band. Importantly, the Business Asset Disposal Relief (BADR) rate – available for qualifying business disposals – has climbed from the long-standing 10% to 14% for 2025/26 and will rise to 18% from 6 April 2026, reducing the overall attractiveness of this relief.

Who is affected:

• Non-resident individuals disposing of UK property,
• Corporate or partnership investors planning exits from UK development or trading structures.

Risks:

• Timing of sales is critical. A disposal shortly after becoming UK resident, or without proper relief planning, could lead to higher tax exposure.
• Many overlook the 60-day reporting and payment obligation on UK residential property gains. Late submissions incur both penalties and interest.

Recommended actions:

• Maintain robust acquisition and enhancement cost records to accurately determine gain.
• Plan disposals in line with residence status and relief eligibility.
• Review BADR qualification and consider pre-sale restructuring or share reorganisations to preserve access.

3. Inheritance Tax: Worldwide exposure for Long-Term UK Residents

A major reform for non-domiciled individuals has emerged quietly but carries significant consequences. From 6 April 2025, individuals who have been UK tax resident for at least 10 out of the previous 20 tax years will become deemed domiciled in the UK for inheritance tax (IHT) purposes.

This means IHT now applies to worldwide assets, not just UK situs property. The 10-out-of-20 test is applied on a rolling basis, and those who trigger this status – even without ever naturalising or holding permanent residence – fall fully within scope.

Standard IHT rules apply:

• The first £325,000 of an estate is tax-free (nil-rate band).
• Anything above that is taxed at 40% on death, or 20% for lifetime transfers into trust.

Impacted investors:

• Long-term residents, often with family and assets spread across jurisdictions,
• Individuals who returned to the UK temporarily or maintain UK ties without formalising their tax domicile.

Key risks:

• Real estate and investment portfolios held abroad, previously outside UK IHT scope, now fall within the tax net.
• Offshore trusts or foreign holding companies may not protect against UK IHT unless structured as excluded property trusts before deemed domicile arises.

Recommended actions:

• Review personal UK residence history annually.
• Revisit wills and estate plans in both jurisdictions.
• Where appropriate, consider the creation of excluded property trusts well in advance of the deemed domicile threshold.
• Track foreign gifts or asset movements, as the UK’s IHT rules apply look-back periods of seven years.

4. Corporate Property Ownership: ATED Increases and valuation Requirements

The Annual Tax on Enveloped Dwellings (ATED) applies to UK residential properties valued over £500,000 that are held by companies or certain partnerships. From 1 April 2025, ATED charges have increased by 1.7%, in line with the Consumer Price Index.

Although widely known, ATED is often misunderstood. It applies regardless of residence of the company or shareholders and is in addition to other taxes such as corporation tax, CGT or SDLT. There are reliefs available, but they must be claimed annually.

Common structures affected:

• Offshore used to acquire residential investment properties,
• Corporate holding entities in long-term portfolios,
• UK property developers who temporarily own dwellings through a group company.

Common pitfalls:

• Failure to revalue every five years, resulting in incorrect banding.
• Missed filing deadlines (30 April each year), triggering penalties and interest.
• Holding via corporate structures that no longer offer tax advantages under current rules.

Recommended course of action:

• Ensure properties are revalued on schedule and documented appropriately.
• Reassess the necessity of corporate wrappers – unwinding structures may reduce long-term tax exposure.
• File ATED returns proactively, even where a relief claim brings the liability to nil.

5. Abolition of the Furnished Holiday Lettings (FHL) Regime

The FHL regime, which provided favourable tax treatment to landlords letting UK properties on a short-term basis, has been fully abolished from:

• 1 April 2025 for corporate owners,
• 6 April 2025 for individuals.

Previously, qualifying properties could be treated as trading businesses, unlocking capital allowances, business property relief for IHT, and eligibility for CGT reliefs such as BADR or rollover relief. These are now gone.

New treatment:

• Mortgage interest is restricted to a 20% tax credit (as with standard buy-to-let),
• Capital allowances on plant and machinery no longer apply,
• Property gains are taxed at residential CGT rates, with fewer relief options.

Who this affects:

• Non-UK residents with holiday homes in UK tourist areas,
• Corporate owners with holiday rental portfolios structured for efficiency under the old rules.

Advisory recommendations:

• Recalculate property yield and post-tax return models.
• Determine whether incorporation or disincorporation would improve outcomes.
• Consider advancing asset disposals to realise gains under the old rules before the deadlines.
• Claim remaining plant and machinery allowances ahead of the April 2025 transition.

Cross-border tax strategy: beyond domestic planning

These legislative changes must also be considered in a cross-border context. Non-resident investors with interests in multiple jurisdictions should consider the following additional safeguards:

• Review UK tax residence and domicile regularly, especially when international travel, family changes or business expansion occur.
• Maximise treaty reliefs, particularly in countries with favourable double tax agreements with the UK.
• Structure property ownership with exit in mind – whether via offshore holding companies, trusts, or personal ownership depending on long-term plans.
• Consider VAT elections for commercial property purchases and developments to enable input VAT recovery.

April 2025 represents a material shift in how international property investors are taxed in the UK. The changes affect acquisitions, income generation, holding structures, and disposals. For high-value and institutional investors, traditional structures and assumptions must now be revisited.

At gunnercooke, we support clients in navigating these reforms with fully integrated legal and tax planning services. From acquisition structuring to long-term estate planning, we work across borders to deliver commercially effective and tax-efficient results.

To discuss how these changes affect your investments, or to request a tailored real estate tax risk review, please contact Neeraj Nagarkatti or Angelo Chirulli.