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Managing your money 8 April 2019

Invest in UK property

It pays to do your research if you’re looking to invest in property in the UK.

Few investment vehicles have the same benefits and returns as property when it comes to building long-term personal wealth.

The rise of the global economy has made it easier for people to invest in offshore property and net strong returns, with the UK being a particularly attractive option. But with any investment, research and knowledge of the market play a significant role in the success of a property investment venture.

Why invest in UK property?

The UK’s population increased by a record 7% (four million) in the last decade. Ongoing population growth has led to a great demand for housing. Apart from political and economic stability, the UK also offers rising rental yields. Since 2002 demand for rental property has almost doubled as a result of record population growth.

Consider the challenges

Unless you’ve lived in the UK and know where you plan to buy, it’s best to visit and explore the area in person. This will also give you the opportunity to verify the seller’s claims.

Obtaining finance may be difficult. It’s harder to secure finance in a foreign country and you have to meet certain criteria. Buying property in the UK while living outside the UK is easier if you’re a cash buyer, however there are options available through international banks if you need to apply for a loan or additional borrowing.

Another aspect to bear in mind are exchange rates which could impact the value of your investment should your plans change and you need to move money back to your home country.

Managing your overseas property investment from a distance has its challenges, but these could be overcome provided you choose the right property manager who can also help to find you suitable tenants.

Know the local tax rules

Landlords who are non-resident in the UK and receive an income from letting their property have to register with Her Majesty’s Revenue and Customs (HMRC). If you and your spouse own a property together, you’ll have to register separately. If you don’t register, tax withholding can apply – your letting agent or tenant will have to withhold 20% tax from the rent payable to you.

Income tax is due on the income made from UK property income even if you pay tax in your country of residence. In fact, according to the law, the UK has the first right to tax income from property in the UK, even if it’s also subject to tax in another country.

If you’re liable for tax in your home country on the UK property income, you will need to submit a claim to your own tax authority for the UK tax that you’ve paid and may be able to benefit from ‘double taxation’ relief.

At the end of each tax year, non-resident landlords have to file a UK Tax Return with HMRC. Make sure you keep records of your income and deductible expenses. Allowable expenses include the costs of maintenance and repairs to the property, mortgage interest and insurances, but not capital improvements.

Because the rules and regulations are complex, it’s advisable to employ the services of a tax practitioner so you don’t end up paying more than you need to when it comes to tax payments and possible penalties.

In the UK, non-residents are also liable for capital gains tax on the sale of UK real estate. Whether or not you make a profit any sale must be reported within 30 days.

Many of the costs incurred by investors in UK real estate will be subject to UK VAT at 20%, including legal, architects and survey fees, estate agent charges and other professional costs.

According to recent government plans, non-British citizens buying property in Britain could face paying 1% to 3% tax in addition to the stamp duty on their purchase of homes in the UK. Stamp duty is a tax on properties worth more than £125 000.

Foreign investment property regulations

Be careful, as landlords of buy-to let properties may need to comply with stringent local regulations and non-compliance could lead to penalties.

Using the services of a reputable letting agent who’s based in the area you want to buy in will make your life as a property owner that much easier

Next step

Take a look at our UK Property Lending, or for companies the Business Accounts that we offer