The opportunities available in UK property have turned the market into a highly attractive prospect for many overseas investors. This has continued to be the case in recent years, partly because the decline in the value of the pound since the June 2016 EU membership referendum has given international buyers more purchasing power in Britain.
While there are clearly attractive returns to be gained in the UK real estate market, overseas investors also need to be aware of the various tax obligations and other financial factors that will come with any purchase.
One such consideration is the recently announced one per cent increase in stamp duty applied to overseas investors of property in England and Northern Ireland.
The surcharge was announced by prime minister Theresa May during the 2018 Conservative party conference and detailed in the latest Budget, before being put up for consultation earlier this year.
It states that non-British residents buying property in England or Northern Ireland will have to pay one per cent more in stamp duty on top of existing rates, which are broken up into tiers based on the price of the property.
‘Non-British resident’ status applies to anyone who has spent fewer than 183 days in the UK during the year leading up to the purchase.
Proposed UK stamp duty overseas investors
If the proposals are approved, people who fall into this category will have to pay the following rates of SDLT:
- One per cent on the first £125,000 of the purchase amount
- Three per cent on the next £125,000 (the portion between £125,001 and £250,000)
- Six per cent on the next £675,000 (between £250,001 and £925,000)
- 11 per cent on the next £575,000 (between £925,001 and £1.5 million)
- 13 per cent on any remaining amount (above £1.5 million)
This is intended as a measure to control house price growth in the UK. Treasury spokesperson Mel Stride said: “The UK is and will remain an open and dynamic economy, but some evidence shows that non-UK resident buyers of UK property could be inflating house prices.”
The government has said it wants to keep the SDLT surcharge as simple as possible, but there have been questions raised about whether the change could further complicate an already complex system.
Nimesh Shah, of accountants Blick Rothenberg, told the Telegraph: “There appears to be a general naivety on the government’s part as to how complex the stamp duty regime has become, and adding this new provision will add to the difficulty.”
The latest in a series of reforms
There have been a number of significant changes to the taxation of UK residential property in recent years.
In April 2016, the government brought in a new requirement for anyone purchasing a property in addition to their main home to pay higher stamp duty. The rates were increased to:
- Three per cent on the first £125,000
- Five per cent on the portion between £125,001 and £250,000
- Eight per cent on the amount above £250,001
There have also been technical adjustments including an extension to annual tax on enveloped dwellings, and related capital gains tax for acquisitions by corporate vehicles, to apply where the chargeable amount is above £500,000.
Rules and regulations such as these are significant considerations for overseas investors in UK property, but they don’t appear to have dented confidence in the market. Indeed, there are still many features of British property that make it highly attractive to foreign buyers.
The proposed stamp duty surcharge could make purchases more expensive, and Brexit continues to cause uncertainty, but there is still clear value to be gained from UK property for international investors.
According to recent analysis by Savills, the total value of housing stock in the UK increased by £190 billion to a record £7.29 trillion in 2018. Steve Morgan, CEO of the real estate advisory firm, said the British market continues to offer great potential, particularly for investors based in the Middle East.
“Traditionally, money from this region has been invested into the globally significant areas of London and as a long-term investment that remains solid advice, but there are also many regional parts of the UK which should be considered,” he told Arabian Business.
Plenty of opportunities available for investors
The Northern Powerhouse initiative has delivered a major economic boost for cities such as Manchester and Liverpool in recent years, reinvigorating local property markets and opening up new opportunities for investors.
Research by professional services firm EY showed the north-west recorded its highest number of foreign direct investment projects over the past decade, with a 17 per cent increase in 2017, compared to the previous year.
Bob Ward, managing partner at EY in the north-west, said: “The Northern Powerhouse message is one that plays well on the international stage, and the north-west, along with our near neighbours in Yorkshire and the north-east, is seeing that translate into record levels of investment across a broad spectrum of sectors.”
Furthermore, the UK offers a diverse range of investment opportunities across a range of asset classes, including lucrative segments such as purpose-built student accommodation and hotel suites, which aren’t subject to the same stamp duty requirements as residential housing.
Combined with the historically weak value of the pound making buying in the UK an attractive option for foreign nationals, these features show that British property still has plenty to offer overseas investors in 2019.
For more information about changes to UK stamp duty overseas investors may face, contact Experience Invest.