The frequently asked questions about foreigners buying property in the UK
As property accountants, we are regularly asked if foreigners can buy property in the UK.
The UK property market has been a prime target for foreign investors. In the last 24 months, the number of homes Let by non-UK based property owners has soared.
Property investors from the USA, Europe and Asia have seen the UK property market as a good investment for years with strong appreciation, growing rental markets, and the ongoing support of private and public investment across the whole country.
According to industry sources, in 2020, the UK’s housing stock value reached £7.56 trillion, a record high.
The north of England saw the strongest rise in housing values since 2005.
The total value of UK housing stock rose by £380 billion in 2020, the fastest increase since 2015.
One major factor influencing overseas investors desire to buy property in the UK has been the Pound’s depreciation since the EU referendum in 2016.
Favourable exchange rates for foreign investors mean they get much more for their money now than they once did, opening up a wider section of the property market.
The UK’s housing market is also secure in times of political unease, which is another attraction for foreigners looking for a stable place to invest their money.
The UK’s rental market continues to grow, presenting excellent yields for property investors
We will look to answer the below questions in this Article:
“Why you may be paying too much tax when buying property in the UK.”
“UK tax when moving to the UK.”
“Understanding the basics of buying property in the UK.”
“Can foreigners buy property in the UK?”
“Do foreign investors need a visa to buy UK property?”
“What are the tax implications for a foreigner buying UK property?”
“Which UK areas are the best for property investment?”
“Can foreigners get a mortgage in the UK?”
“What percentage of UK property is owned by foreigners?”
“Does buying a property in the UK grant residency there?”
“How does this affect our American readers?”
UK Tax resident status: You may be interested in our main Article on UK Tax status if you are looking to move to the UK or from the UK. You may also be interested to know how more about our property tax services if you are looking to invest in the UK buy to let property market.
Why you may be paying too much tax when buying property in the UK
Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.
There are many reasons why people pay far more tax than they need. This is because:
– They do not know what they do not know.
– They have not spoken to a tax specialist to go through their situation to see what available tax reliefs are available to them.
– Their accountants or solicitors are not aware of the many reliefs available to their clients and are not taken advantage of.
– Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.
UK Tax when moving to the UK
How much tax will you pay in the UK? What is the remittance basis tax charge, and do you need to pay it? We will show you what taxes you need to be aware of and how to reduce them. Download today, save tax tomorrow.
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Understanding the basics of buying property in the UK
As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that buying property in the UK can be a successful and profitable investment strategy.
As people in the UK continue to buy later in life, the private rented sector performs strongly for investors, and there has been a boom in build-to-rent across the country.
According to an industry report, the UK’s average rent for a newly-let property in October 2020 was £999 representing a 2.2% increase from the previous year.
Buying property in the UK as a foreigner is easier if you are a cash buyer and do not need to apply for a mortgage or additional borrowing.
If you are a foreigner looking to buy property in the UK, it’s important to fully understand the property market and have access to funds.
It is also important to remember that while the Pound is currently relatively cheap, property prices in the UK are comparatively high, depending on the area.
Buy a property outright in the UK can deliver high yields from rental income with UK property prices rising.
Last year, foreign investors paid more than £33.3 billion into the London prime property market alone.
The process for buying a property in the UK is relatively straightforward:
– If required, obtain a mortgage offer in principle
– If the offer to the vendor is accepted, instruct solicitors
– Property survey, bank valuation, pre-contract searches and investigation of title
– Exchange contracts and pay deposit
– Completion by paying the balance to the vendor
– Post-completion, including paying SDLT
It is advisable to get professional conveyancing and tax advice before making an offer on a property.
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Can foreigners buy property in the UK?
Foreigners can legally buy property in the UK, whether they are classed as a resident or not.
Banks might offer foreign investors less favourable mortgage terms or higher interest rates.
There are also no legal restrictions on British ex-pats buying property in the UK.
Foreigners and non-residents can get a mortgage in the UK. Those with less than two years of residency in the UK and without a job might face more stringent requirements, including a bigger deposit.
It’s worth reviewing UK residency status and tax considerations before committing to investing.
Do foreign investors need a visa to buy UK property?
A visa is not required to buy a property in the UK.
To find out how to get a UK Visa, we recommend seeking out expert advice.
What are the tax implications for a foreigner buying UK property?
If you are a non-resident looking to purchase UK property to rent out, the HMRC has clear tax guidelines.
You may also need to pay tax if you make a capital gain when you sell property or land in the UK.
If you live abroad for six months or more per year, you’re classed as a ‘non-resident landlord’ by HMRC, even if you’re a UK resident for tax purposes.
It is critical to understand everything you need to know about paying tax in the UK as a non-resident property owner before purchasing.
If you’re wondering how 2021 Rishi Sunak Budget changes affect UK landlords, always seek expert tax advice.
There are several rules and regulations regarding taxation that non-residents need to be aware of when buying property. These include:
Income tax consideration for foreign property investors.
If a property is bought to be rented out, a withholding tax of 20% will be deducted from the landlord’s gross annual rental income from the property. This is done by the letting agent when they collect money from the tenant.
To avoid paying this additional tax, the individual would need to register with HMRC under the Non-UK Resident Landlord Scheme and, once registered, would receive the gross rental income.
They would have to submit a self-assessment tax return each year and pay income tax at 20% on the net rental profit.
Capital Gains Tax consideration for foreign property investors.
From April 2015, all residential gains were brought into charge on properties valued at over £500,00.
Any capital gain accruing from April 2015 to the date of sale is chargeable.
The rules were extended further, and from April 2019, commercial properties and any indirect interests in all properties are subject to Capital Gains Tax.
One of our articles covers everything you need to know about avoiding Capital Gains Tax when purchasing property in the UK.
We also recommend that readers investigate Capital Gains Tax when selling foreign assets as well.
Inheritance Tax (IHT) consideration for foreign property investors.
Properties situated in the UK are liable to Inheritance Tax. Before April 2017, residential properties held through offshore companies were excluded. This is no longer the case. The amount of tax you will pay above the IHT lifetime allowance is 40%. Therefore, you must know all there is to know about this tax to avoid giving away your assets to HMRC.
Stamp Duty Land Tax (SDLT) consideration for foreign property investors.
All property purchases have been affected by the recent increase in SDLT.
However, where a company, or what can be termed as a ‘non-natural person’ (such as a non-resident company or entity), acquires a property costing more than £500,000, there is a potential tax rate of 15%.
If the entity is a lettings business or developer, exemptions are available.
Additional 3% SDLT Rate
An additional 3% charge is added to the standard rate of SDLT if the UK property being purchased is an additional residential property already owned anywhere else in the world.
The additional 3% rate applies on top of the revised standard rates from 8 July 2020 to 31 March 2021.
This additional 3% surcharge will not apply if a foreign property investor is replacing their main home on the same day.
From the 1st April 2021, the temporary reduction in SDLT will lapse.
2% non-UK resident surcharge
From the 1st April 2021, an additional 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland will apply.
This means that if a property investor purchases a UK property as a holiday home and already owns another property, they will pay the 2% non-UK resident surcharge plus the 3% SDLT charge on purchasing additional homes.
Purchase of shares in a property holding company
If a property investor buys shares in a property holding company, they will not pay SDLT.
However, some potential downsides to acquiring the shares in a property holding company that should be investigated include the Annual Tax on Enveloped Dwellings.
Since 6th April 2017, holding UK residential property through a company does not protect from UK inheritance tax.
Annual Tax on Enveloped Dwellings (ATED)
ATED is an annual tax payable by companies that own UK residential property valued at more than £500,000.
We recommend that you speak to a specialist property accountant to ensure you are fully tax-efficient.
Which UK areas are the best for property investment?
Property prices across the UK are forecast to rise by 5% during 2021. Some of the best places to invest for buy to let properties in the UK during the last 12 months include Birmingham, Manchester, Liverpool, Sheffield, Leeds, Leicester, Nottingham and Oxford.
Can foreigners get a mortgage in the UK?
Most UK lenders do not lend to non-UK residents, so there are fewer mortgage options for foreign investors looking to buy property in the UK.
Specialist lenders and international banks may help foreign property investors get a mortgage on a UK property. These lenders will usually consider age, income, job security and credit score when assessing whether to assist in securing a mortgage on a property in the UK.
What percentage of UK property is owned by foreigners?
According to recent industry statistics, nearly 20% of all new-build sales in the UK were made by foreign investors.
Another industry survey calculated that nearly 28% of all London property is currently foreign-owned.
Does buying a property in the UK grant residency there?
Purchasing a property in the UK will not give the foreign investor residency rights in the UK.
How does this affect our American readers?
Americans that buy UK real estate property investments will need to pay tax in both the US and UK.
You can receive a tax credit for the tax you have paid in the UK so that you may not pay an additional tax to the IRS.
To learn more, make sure you head over to our sister company Purser Tax that helps British people save tax in the US and Americans save tax in the UK.
It is one thing to be tax-efficient in the UK or the US; it is another thing to be tax-efficient across the Atlantic. This is why you need to get a tax advisor that truly understands international tax.