Property taxes: Definition, Overview & FAQ

What is a property tax?

Definition: A property tax is an annual or semiannual fee levied by a local government and paid by real estate owners in its jurisdiction. Property tax is an ad valorem tax, which means that the amount owed is a percentage of the assessed value of the real property.

In the UK, Stamp Duty Land Tax (SDLT) is a property tax on the purchase of property or land. If you’re not from the UK and you’re buying a property in England or Northern Ireland, you’ll have to pay an extra 2% on the total purchase price.

How is property tax calculated?

Property tax is usually calculated by the value of the property and a predetermined tax rate. Local laws and regulations might differ greatly, so confer with your local tax authority or tax specialist for precise estimates and applicable guidelines in your area.

There are several general steps to determining property taxes. First, a property valuation is performed; the local authority or an appointed valuer assesses the market value of your property.

In some regions, only a fraction of the market value is taxed. The valuation coefficient is the proportion of market value that is taxable. For example, if the assessment ratio is 80% and your property’s market value is £200,000, the assessed value is £160,000.

The tax rate is determined and commonly represented in mils, where one mil equals one-tenth of a penny. For example, a tax rate of 10 mills means you pay £10 for every £1,000 of assessed value.

Appraised Value: Multiply the market value by the appraisal coefficient.

Property tax is determined by multiplying the assessed value by the applicable tax rate.

Example:

• The market value is £300,000.
• Assessment coefficient: 70 percent (0.70)
• Estimated value: £300,000 multiplied by 0.70 is £210,000
• Tax Rate: 15 Miles (0.015).
• Property tax: £210,000 x 0.015 = £3,150.
• So the property tax for a property with a market value of £300,000, a valuation ratio of 70%, and a tax rate of 15% would be £3,150 per year.

Additional Details

• Exemptions and Deductions: Certain properties, such as principal residence exemptions, may be eligible for exemptions or deductions that reduce their taxable value.
• Special Assessments: Additional assessments may be required for special local improvements, such as new sidewalks or sewer systems.
• Changes in Values: Property values may fluctuate over time owing to market conditions, improvements, or periodic reassessments.

What UK property tax do I need to pay?

There are numerous types of landlord taxes in the UK that you should be aware of, including:

• National Insurance Contributions (NICs): Only for resident landlords. Non-resident landlords are generally not subject to NICs on rental income.
• Stamp Duty Land Tax.
• Capital Gains Tax.
• Rental income tax (income tax).

Stamp Duty Land Tax, Capital Gains Tax, and Income Tax are all forms of landlord tax in the UK.

Are there any other taxes on property in the UK that we should be aware of?

In addition to the two major taxes mentioned above, various other UK property taxes and charges may apply to property in the UK. 

• Stamp Duty Land Tax (SDLT) is a tax payable on the purchase of UK property. It is a one-off tax, not an annual tax.
• Capital Gains Tax (CGT) is a tax levied on the profit obtained when you sell a UK asset, including property. It is a one-time tax, not an annual one.

You also need to be aware of:

• Ground rent is not usually regarded as UK property tax. If the land on which your property stands is owned by someone else, you will be required to pay this rent on an annual basis. It is paid annually.
• Land and Buildings Transaction Tax (LBTT) is a one-time UK property tax levied when you buy a home in Scotland. The amount of tax you pay will depend on the value of the property and whether you are a first-time buyer.

Inheritance Tax (IHT) is not a UK property tax, but it may apply to property in a deceased person’s estate. It is only paid once, when a person dies.

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