Legal & Tax

Are there any legal restriction on the acquisition of UK real estate by overseas investors?

There are no restrictions on overseas investors acquiring real estate in the UK.  Real estate can be purchased, rented, sold, financed (refinanced) or leased by individuals or companies for their own use or as an investment.

The only initial documents you would need to present would be: -

1. Evidence of the Purchaser’s/Seller’s identity in accordance with statutory requirements.
2. Proof of the Purchaser’s/Seller’s current residential address and their proof of funds/wealth to ascertain the source of the funds in order to comply with UK’s Anti-Money Laundering Regulations.
3. If purchasing the property under a company or other corporate entity, then you would be required to provide the above items (1) and (2) in respect of the Directors/Shareholders of the Company and we would also require the constitutional documents of the Company.
4. In some instances, if a corporate entity is purchasing the property then a Legal Opinion from an independent lawyer in the relevant jurisdiction of the purchaser is required to ensure the enforceability of documents and the validity of the transaction.

What types of Real Estate interests or ownership are there in the UK?

There are two main types of interests in the UK, namely, Freehold and Leasehold.  Unlike in the other countries, overseas investors can purchase both Freehold and Leasehold in either their own names or under the name of a Company controlled by them.

What is a Freehold? 

Freehold: - 

•           You own the property including the land its built on outright.

•           You are responsible for maintaining your property and the land.

•           Most houses (Landed Property) are freehold but some might be leasehold – usually through shared-ownership schemes.

Benefits of owning a Freehold

You do not have to: -

•           Worry about the lease running out, as you own the property outright.

•           Deal with the freeholder (often known as the landlord or freeholder).

•           Pay ground rent, service charges or any of the landlord charges.

What is Leasehold?

With a leasehold, you own the property (subject to the terms of the lease) for the length of your lease agreement with the freeholder.

When the lease ends, ownership returns to the freeholder unless you can extend the lease. There is legislation to allow any leaseholder to extend their lease for a premium, provided they comply with the criteria set out in the legislation.

Most flats and maisonettes are leaseholds, so when you own the property in the building, you have no stake in the building it is in or the land on which the building sits on.

Some houses are sold leaseholds. If this is the case, you own the property, but not the land it sits on.

Things to consider when buying a leasehold property

•           How many years are left on the lease; if the lease is less than 70 years, you might struggle to get a mortgage.

•           How much is the service charge and ground rent and other related costs, so you can budget for them.

•           How the length of the lease might affect you getting a mortgage and the property resale value. The lender will normally need it to run for 25-30 years from the end of your mortgage.As a result, it might be difficult to sell a property, if the lease is for less than 80 years 

Extending the Lease 

You can ask your Landlord to extend the lease at any time. Once you have owned the property for two years, you have the right to extend your lease by 90 years, provided you are a qualifying tenant. Usually you will be a qualifying tenant if your original lease was for more than 21 years.  The freeholder will charge to extend the lease and the cost will depend on the Property

Do you have to register your Real Estate interest in the UK? 

Yes.  The Land Registry, a Government Agency maintains a public register of each title to the land.

Each piece of land has a separate title number so when a potential purchaser wants to check the title, a quick search of the public register can be performed.  During the purchasing process, we would undertake due diligence on the title and also undertake registration duties after completion of the purchase. 

The common way to borrow money in the UK is to borrow from Bank or other lenders.  They will normally lend up to 80%, but this can be less depending on your personal circumstances and the economic climate.

The common way to borrow money in the UK is to borrow from Bank or other lenders.  They will normally lend up to 80%, but this can be less depending on your personal circumstances and the economic climate.

Taxation of residential property has been a focus for the UK Government in recent years. Resulting changes have added complexity to the tax system, whilst at the same time the buoyant UK property market has attracted increasing numbers of overseas buyers.

If you are seriously contemplating a UK property purchase, we recommend that you take tailored UK tax advice at the first available opportunity. The information in this note is a broad guide to the taxes to consider but is no substitute for full advice

8.1       Stamp Duty Land Tax (SDLT)

SDLT is payable on a purchase of a UK property. The applicable rate will depend on the value and nature of the property, with different rates being applied to various ‘bands’ of the value (see table for details).

There is an SDLT ‘surcharge’ if an individual purchaser (or their spouse) of UK residential property already owns residential property (anywhere in the world) and will continue to do so following the purchase. The surcharge imposes an additional 3% SDLT, bringing the applicable rates to between 3% and 15%. There are reliefs available, and circumstances in which the additional 3% may be reclaimed.

There is a punitive rate of 15% (on the whole purchase price), on purchases made by ‘non-natural persons’ such as companies. This broadly covers purchasers who fall within ATED (see below). There are exemptions from this rate, e.g. for qualifying rental businesses. 

You must pay Stamp Duty Land Tax (‘SDLT’) if you buy a property or land over a certain price in England & Wales and Northern Ireland. By way of an example, please refer to the table below:

*From 1 April 2016, you’ll usually have to pay 3% on top of the normal SDLT rates if buying a new residential property means you’ll own more than one worldwide.  You may not have to pay the higher rate if you exchanged contracts before 26th November 2015.

Please note that additional 2% charged on top of the 3% if completion takes place after 1st April 2021 for non-UK residents.

You should refer to HMRC Website for more detailed advice on the SDLT regimen in the UK. 

https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

You can follow the link below if you wish to calculate your SDLT liability.

https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

You may be entitled to certain exemptions.You can refer to the link above for further information.

Disclaimer

Please note that this information is for general purposes and is not intended to be tax advice.  Tax rules are subject to change at any time without prior notice.You should always obtain specific advice which is relevant to your circumstances.

SDLT rules are very complicated and advice can vary depending on your circumstances. 

8.2       Inheritance Tax (IHT)

For those not domiciled in the UK, IHT is payable on death, and on gifts into trust, on UK assets. UK residential properties held via offshore companies have been deemed ‘UK situs’ for tax purposes since April 2017 and are subject to IHT on a shareholder’s death.

IHT is charged at 40% above the Nil Rate Band of £325,000 (charged at 0%), although various reliefs are available. Many clients consider mitigating IHT by giving properties to their (minor) children. Whilst this may seem appealing, it can have severe tax disadvantages in some cases. This is an area where early advice is beneficial as it is difficult to unwind such a gift once made.

8.3       Non-Resident Capital Gains Tax (NRCGT)

Since April 2015, NRCGT has been payable on gains realised by non-residents on a disposal of UK residential property. The rate of NRCGT is 28% (although in some cases an 18% rate will apply). NRCGT is payable on the increase in value of property, i.e. the difference between the purchase price and the value at date of disposal (less any deductions or reliefs). NRCGT returns must be filed and tax paid within 30 days of a disposal.

NRCGT arises on all ‘disposals’ of residential property (by individuals; the position of companies is slightly different and beyond the scope of this note), for example gifts to family members. Gifts can have wide-ranging UK tax consequences (with NRCGT just one tax to consider), and it is important that tax advice is taken before any gift is made.

It is worth mentioning that NRCGT was extended to all UK property, e.g. commercial property, owned by non-UK residents from 1 April 2019.

8.4       Annual Tax on Enveloped Dwellings (ATED)

ATED is an annual tax on properties worth over £500,000 and owned by ‘non-natural persons’, such as companies. ATED charges range between £3,650 and £232,350 per year depending on the property value; the charge increases annually in line with inflation.

An ATED return must be submitted each year. There are reliefs available in specific situations, but these must be claimed in an ATED return annually.

8.5       Income Tax

If you are buying UK residential property to let to tenants, income tax is payable on the rental income. Rates range between 0% and 45%, depending on the amount of income. Following the end of the UK tax year (5 April), non-resident landlords must submit a UK tax return to declare rental income, and pay any income tax (by the following 31 January).

8.6       Succession planning

In the absence of a Will, succession to UK property is governed by UK intestacy law. The intestacy rules may not be in line with your wishes, and may produce a negative tax outcome. We strongly recommend making an English Will when purchasing a property in England, to give certainty on the succession and tax position on death. We can assist you with preparing a Will. 

Residential property transaction can be difficult to price accurately as no two properties or transactions are the same, and it is often the case that something arises during the transaction which could not have been anticipated at the outset. We offer our clients a service appropriate to their transaction’s requirements and this is reflected in our legal fee estimates. 

You can obtain our legal fee guide by visiting our website at: 

https://www.kingfields.co.uk/services/residential-conveyancing/our-indicative-legal-fees/

Even though we have set out our indicative fees in this guide, we would encourage you always to contact us on zalauddin@kingfields.co.uk or via our website to discuss your requirements and objectives and to identify the nature and level of legal expertise that you require. We can then provide you with an instant tailored cost estimate and detailed explanation of what is and is not included within the estimate.

“Thank you everyone. All of you have been extremely efficient and professional in the manner this transaction has been conducted and I am truly grateful. Well done!”

- Property Investor, Singapore

“Generally, I have received an amazing support, understanding and commitment through the whole sale/purchase process”

- Property Investor, Surrey

“Efficient and effective, helpful staff with excellent knowledge of the property we were selling. Good communication with customer and colleagues for a very smooth process.”

- Property Investor, London

“Your professional attitude and good work have given us confidence in this transaction. Keep it up！“ 

- Property Investor from Hong Kong

You can view more client testimonials by clicking on the following link:

https://www.kingfields.co.uk/firm/testimonials/