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What overseas investors need to know about investing in the UK.

What overseas investors need to know about investing in the UK.

October 12, 2021

The UK is the world’s number one property investment market. Investors from around the world have enjoyed for many years the combination of high short- and long-term returns and a level of security that simply cannot be found anywhere else in the world.

Whether you are looking to build a portfolio that will provide a secure income for many years, or are looking for more immediate capital appreciation, investing in UK property is the solution for you. To assist, we have put together a list of some of the most important things overseas investors need to know about investing in the UK.

Get the right location

The UK has a huge range of property market locations which all have their own characteristics. This is undoubtedly a strength of investing in the UK as it means that whatever your investment goals are, you will be able to find a property to suit.

Examples of regional variations include entry prices, rental yields and capital appreciation prospects – but we recommend you don’t get bogged down. If you follow the basic rules of investment then you will find the right location for you naturally.

The key, as always, is to work out where people are going and buy ahead of them – thereby making the most out of future demand and the fastest-rising house prices and rents. For example, the London Commuter Belt is a far better bet than Central London at the moment due to a population demographic change that is underway – the rise in home or remote working means that more people than ever are leaving the capital and moving to the outskirts which are more affordable and offer a different lifestyle. As such, Commuter Belt hotspots like Chatham, Uxbridge and Ashford are good bets for overseas property investors.

Can I get a mortgage in the UK as an overseas investor?

While many overseas investors prefer a cash purchase, there is also a huge range of mortgage products available which you can access even if you do not reside in the UK. While you are likely to need a larger than a standard deposit, it is possible to get mortgages fairly easily and this can allow you to grow your portfolio faster than if you rely purely on cash purchases.

The documentation you will need to proceed with a mortgage in the UK as an overseas buyer include:

  • Passport
  • Proof of funds
  • Proof of creditworthiness
  • Anti-money laundering documentation

A final thing to note is that mortgages for overseas buyers are generally not available on properties under the value of £150,000 – however, the average UK property price is now more than £267,000 according to Halifax, and it is unlikely that you will be able to find a premium investment property in the best markets for less than the £150,000 threshold.

As with all mortgages, if you are unsure we would always recommend talking to an independent mortgage advisor. Our team can put you in touch with an expert – if you require one, please get in touch today by clicking here.

Make sure you understand the property buying process

The first step when buying a property in the UK is to pay a holding deposit to secure your reservation. This will normally be approximately £5,000 and the developer or agent will not be able to guarantee your purchase until this is paid.

Following this, you will undertake the exchange of contracts. This process will normally need to be completed within 28 days of reservation and will involve the appointment of a solicitor who will confirm that the purchase is correct and that you can proceed safely. It is worth noting that if you are purchasing off-plan – before the property has been completed – then this exchange of contracts will normally require a further staged payment, the size of which varies. If you are buying an off-plan property, make sure that you are aware of the payment plan stages.

The stages of exchange are as follows:

  • The selling agent’s solicitors will send a contract to your solicitor
  • You will then be able to ask questions, and your solicitor will raise any queries with the selling agent
  • When you are satisfied, you will sign the contract and pay any monies due on exchange
  • Following this, the purchase becomes legally binding

As an overseas buyer, you will need to provide your solicitor with some information at this stage, including:

  • Proof of address
  • Certified ID
  • Proof of funds

Following this, you will have to pay the remaining funds at the appropriate time. For example, if you are buying off-plan then you may have a 10-day deadline following the completion of the property and the handover of keys. Ensure that you are clear on the details of this before proceeding with your initial reservation.

We recommend that you consult with an independent financial advisor if you are unsure at any point or require additional advice before reserving a property.

What are the tax considerations for overseas property investors in the UK?

As an investor in UK property, you will have to pay tax at various points in the process. The most notable ones are:

  • Income Tax – This is a compulsory tax paid on all of the rental returns you make from a property based in the UK. The rate goes from a basic 20% to a maximum of 45% depending on how much income to receive through the Non-Resident Landlord Scheme (see more below). If you do not reside in the UK, you will have to pay income tax at the rate in your home country.
  • Stamp Duty – Stamp Duty Land Tax is a compulsory tax payable on all properties over £125,000. The amount of tax depends on the value of the property and increases on a sliding scale. As a foreign investor, you will be required to pay a 3% Stamp Duty surcharge on your purchase, though it is worth noting that this additional 3% is likely to be wiped out within a year by your profits.
  • Capital Gains – This is a compulsory tax paid on the sale of your property and is based on how much profit you make over the original sales price.

We recommend that you consult with an independent financial advisor if you are unsure at any point or require additional advice regarding taxation.

Non-Resident Landlord Scheme

The Non-Resident Landlord Scheme is how HMRC collects taxable income from landlords who spend most of their year (more than six months) living overseas. If you qualify for the scheme, you are required to sign up for it.

Being part of the scheme means that landlords can receive their full rent without an immediate deduction of basic rate income tax. You are still obliged to pay this tax, but if you are signed up to the scheme you can do so through a self-assessment at a later date.

If you are not part of the Non-Resident Landlord Scheme, you will have the basic rate of income tax (20%) deducted immediately from your rent.

For more information about the Non-Resident Landlord Scheme, click here.

The above is our list of the most important things that overseas landlords need to know before investing in UK property. For more information about becoming an overseas investor, contact our team today by clicking here and we will be more than happy to advise you on the best investment strategies >>

Author

Sanjit Dhanjal.

sanjit@opulentinvest.com