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Guide to buying property in the UK from overseas

Published by UAE Business

Buying property in the UK from overseas can be daunting, especially if you have never visited the country before. Mortgages in the UK are available to anyone who can afford one and the prices of a mortgage vary depending on which part of the country you are looking to buy in.

The UK buy to let rental market is currently booming and due to the shortage of residential properties, is continuing to grow, providing a stable investment for overseas investors. This is despite the 2% additional stamp duty that is payable by all non-UK residents investing in UK residential property. Data based on HM Land Registry statistics shows that foreign ownership of UK property has gone up by around 180% in 11 years.

Non-UK investors in UK residential property are classed as non-resident landlords and liable to file UK tax returns and pay any tax on the rental income earned in the UK. There are double taxation agreements in place between countries to stop tax from being paid twice on the same income.

From April 2017, non-UK residents owning assets in the UK became liable to UK inheritance tax on death.

It is important for investors to take UK tax advice, based on their individual circumstances, to ensure they are being tax compliant as well as paying the correct amount of tax in the UK. This applies to new and existing investors and advice should be sought from UK accountants specialising in non-resident property investors.

Some of the things that should be considered include:

  1. Availability of a UK Personal Allowance to non-residents
  2. Becoming a non-resident landlord and applying to receive rental income gross under the non-resident landlord scheme. The procedure if gross status isn’t granted
  3. How your rental income will be taxed
  4. UK HMRC filing obligations for Non-residents and income in the UK
  5. Application of any Double Taxation agreement with resident company and UK.
  6. Non-resident Capital Gains Tax on the sale of UK residential property.

Can foreigners buy property in the UK?

Foreigners are able to buy property in the UK as there is no legal restriction to dictate otherwise. However, the system for applying for and being granted a home loan can be complicated.

Buying a property in the UK as a foreigner is easier to do if you are a cash-buyer meaning you do not need to apply for a mortgage or any additional borrowings. If you are looking to buy a property in the UK you need to have a full understanding of the current market conditions and access to funds.

It is a lot easier to get a mortgage in the UK if you:

  • Have been residing in the UK for at least two years
  • Have a permanent, stable job in the UK
  • Have a UK bank account

These are in place to ensure you have built up a good credit history in the UK. Non-Uk residents and those who don’t meet all the requirements can still take out a non-status mortgage, also known as a self-certification mortgage in which your deposit is 25%.

If you are a non-Uk resident looking to purchase a property in the UK, you will also need to appoint a UK conveyancer to handle the legal paperwork when buying a house in the UK. The same taxes do apply for non-UK residents on property and property-related income. Stamp duty and Capital Gains Tax will both be paid at the same rate if the property is later sold with profit.

How to buy a property in the UK

Expats are able to buy property in the UK as there is no legal restriction to dictate otherwise. However, the system for applying for and being granted a home loan can be complicated. However, there are a few considerations to take into account.

Freehold vs Leasehold

There are two different ways to purchase a property in the UK, freehold or leasehold. Leasehold means you only own the property for a fixed amount of time which is agreed with the landlord. Freehold property in England and Wales means that you own the property outright and the land the property is built on.

Tax implications for overseas investors

If you are a citizen of a European economic area country or have worked for the British Government within the past tax year, then you will get a tax free personal allowance.

If you are planning to be a non-resident landlord of a property in the UK then you will need to pay tax on rental income, although you might be liable to an exemption if you pay tax on this income in your residing country and your home country has double taxation agreement with the UK.

Mortgage availability

The type of mortgage available to you will depend on the type of property you are looking to purchase. Usually, commercial properties such as care homes do not qualify for a mortgage as residential lenders do not provide loans on commercial properties.  In addition. mortgages are not available to overseas landlords for properties under £150,000.

Upfront costs to buy a house in the UK

There are a string of upfront costs to also consider when buying a house in the Uk. These include:

  • Stamp duty – All properties over £125,000 require stamp duty tax which is calculated at a rate between 2-12%. Use this calculator to estimate the stamp duty you may need to pay.
  • Deposit – If you are taking out a UK mortgage you will need to pay a deposit towards the cost which is typically between 5-40% of the cost of the house. Deposits are calculated on a variety of factors including credit score, monthly income and more.
  • Mortgage Costs – If you do decide to take out a mortgage to buy your home then there will be various fees associated with a mortgage including arrangement fee, booking fee and valuation fee.
  • Legal Fees – You will need to employ a solicitor or conveyancer to carry out the legal side of purchasing a property.
  • Land registry fees – These are paid to the government for the purpose of transferring the properties legal deed to the new owner.

Expat Mortgages

An expat is someone who has left their birth country to reside and work elsewhere. These people typically move away due to work and are still able to get a mortgage in the UK.

Owning a property in the Uk when you work elsewhere can provide a safety net if you ever consider moving back to the UK. Many mortgage lenders view expats as low risk, so you will have the same chance of getting a mortgage as a UK resident as long as you have a good credit score.

 You will have the same requirements as any other resident:

  • At least a 5% deposit
  • Pass lender’s affordability checks

Who can get a property in the UK

In the UK any adult can apply for a mortgage, whether you reside in the country or not. However, the exact terms of purchasing a property will vary depending on the lender you chose to go through with. Each bank and building society will have their own requirements but for the most part, they all have the same main factors that are taken into account:

  • Income and Job: A lenders main concern is whether the mortgage payments will be met and paid on time. They will always calculate the risk of offering a mortgage per individual which can be a disadvantage to those self-employed or freelance. The mortgage lender will require proof of earnings to figure out how much you can afford to pay back.
  • Credit Score: To determine if you are eligible for a mortgage, the lender will check your credit history and score. Those who have a low credit score, or a bad previous history with lending money may not be able to get a mortgage as easily as those who don’t. If you do have a low credit score, take a few months to work on boosting this. (e.g. paying off debts)
  • Age: Mortgages are essentially a big loan that is paid off over a long period of time, so for those who are older it may be harder to get a mortgage. Whilst mortgage lenders won’t fully refuse to give a mortgage to someone who is older, they may ask for a larger deposit and reduce the number of years to pay back. 

Should you buy property in the UK

Since the European Union referendum in 2016, there has been a lingering uncertainty about the property market in the UK. Houses prices in the UK did decrease the year following the referendum, however, this was expected as Brexit left much uncertainty in the country. Despite this knockback, the average house price has remained fairly high at approximately £264,000. 

According to statistics, 63% of households in England were homeowners, which is approximately 14.6 million homes. In recent years, the interest rates on homes in the UK have been a record low, meaning now is a better time than ever to purchase a property, whether that be for investment purposes or for living.

Other purposes for a mortgage in the UK

There are many scenarios when you may want to buy a house in the UK without having to live in the property. This includes:

  • Second home or holiday home – for vacations or general leisure
  • Buy to rent – Buying to rent out the property
  • Buying a business property – to start a legal, UK business.

Calculated UK Accountants property tax specialists in the UK, and are offering a tax consultation to existing non-resident investors as well as new investors who are looking to invest in the UK. If you are a property investor or looking to purchase a property in the UK, you can contact us or email tax@calculated.com and book a consultation.

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