At Boyletts Law, we specialise in assisting high net worth overseas buyers with their investments in UK properties, with a particular focus on prime London properties. Investing in UK property attracts a huge amount of international interest from buyers who are based abroad, as the property market (particularly the London market) offers potential for asset appreciation and high levels of rental income.
However, overseas buyers are required to navigate an even more complex landscape of taxes, financing options, and regulatory matters than domestic buyers, and therefore it is crucial that overseas property investors obtain advice from experienced lawyers who are able to provide holistic and comprehensive advice on all of these considerations.
Stamp Duty Land Tax (SDLT)
When purchasing residential property in England, non-UK residents are subject to higher rates of stamp duty, which is a land tax that is payable by property purchasers within 14 days of the completion of their acquisition.
In April 2021, the Government introduced a 2% non-resident surcharge, which applies to individual (i.e. non-corporate) buyers who are based outside of the UK for at least 183 days of the 12 months immediately preceding the completion date of their purchase.
In addition, individual purchasers who are buying an ‘additional property’ (i.e. where they already own at least one other property, either in the UK or elsewhere in the world), are required to pay a further 3% surcharge. Some exemptions apply, for example where the buyer owns another property and this is being sold in a connected transaction, however in reality an overseas buyer will likely be purchasing a property to be used for rental income or as a holiday home, and therefore in most cases this surcharge will apply.
In the event that both of the above surcharges apply, a buyer could be required to pay tax at a rate of up to 19% on any proportion of the purchase price that falls above £1,500,000.
Depending on the proposed use of the property following completion of the acquisition, and subject to specific tax advice depending on a buyer’s own circumstances, it may prove to be more tax-efficient to own the property in the name of a limited company instead of in the name of an individual. Companies buying residential properties at a value of over £500,000 will pay stamp duty rates up to 17% (although some exemptions apply for property rental companies).
Tax-Efficient Structuring – Personal vs. Corporate Ownership
Before making an offer to purchase a property in the UK, an overseas buyer should consider obtaining advice from a tax specialist or accountant as to the most tax-efficient method of structuring their acquisition. Personal and corporate ownership of property will significantly affect a buyer’s tax liabilities throughout the lifetime of their asset.
When a property is owned in a buyer’s personal name and is let to a tenant, income tax will be payable on any rental income. Additionally, capital gains tax will apply to profits made when the property is sold in the future, which will limit the net value that a buyer is able to realise in the event of appreciation. UK properties owned by individuals are also subject to inheritance tax, regardless of the buyer’s country of residence.
Alternatively, if a property is owned in the name of a company instead of an individual, an entirely different tax scheme will apply instead. This includes corporation tax, whereby rental profits and capital gains will taxed at rates between 19% and 25%, depending on the company’s profit levels. An annual tax on enveloped dwellings applies to residential properties with a value of over £500,000 which are owned by companies. Considerations should also be made in respect of local tax implications in the owners’ country of residence regarding dividends obtained from companies.
Since the introduction of the Economic Crime (Transparency and Enforcement) Act 2022, companies that are registered in overseas territories are now also required to register with Companies House in the UK as an ‘Overseas Entity’ before they can be registered at the owner of a property at the Land Registry (and therefore before completing the acquisition of a property based in the UK).
Financing
As an overseas investor, obtaining mortgages and financing for property purchases can often be significantly more challenging than it is for domestic buyers – this can provide even more difficult for newly-established companies with no historic accounts. Most major UK lenders may have stricter criteria for non-residents, including requiring them to put down larger deposits on the property (so that the ‘loan to value’ is reduced), and higher interest rates may also apply. The mortgage lender will conduct detailed assessments and affordability checks and will often require comprehensive documentation including proof of income, evidence of identity and reference letters from third parties.
It is essential for an overseas buyer engage a specialist mortgage broker early in their search for a property to ensure that any required financing arrangements will be available to the buyer once a property has been found.
Obtaining Advice
Given all the additional considerations that need to be taken into account by overseas buyers when purchasing property in the UK, a range of expert advice should be obtained.
Tax specialists should be instructed as early as possible to ensure that the structuring of the acquisition is decided before an offer is made. Mortgage brokers who are specialists in international mortgages can identify suitable financing options and liaise with lenders at the outset of the transaction. Instructing solicitors who have experience with international clients will ensure that the acquisition is completed as efficiently as possible.
If you require any advice in relation to your proposed property acquisition, please don’t hesitate to contact Boyletts Law on 01279 295047 for an initial discussion, as we would be delighted to help.