Posted on 18th May 2022

How To Safely Invest In Real Estate In The UK

Drone shot of UK housing area from above

In 2021, the UK house market reached new record highs after rising by more than 10% over the previous year. The increase also marked the fastest growth rate seen in the past 15 years. The housing boom that started during the COVID-19 pandemic continued strongly in the first months of 2022 as well. By the end of April, the average property prices had surpassed a new record high of £360,000. The increase represented a 9.9% price growth since the start of the year.

As with any investment, there is a significant risk involved. Investors should find reliable partners to help them navigate laws and tax regulations. In the more serious cases, having the assistance of experienced insolvency practitioners London could also help organizations find suitable options among the available choices to move forward in a more stable and positive financial condition.


Rising Rent Yields

Accompanying the thriving property market in the UK, the rental sector also experienced significant growth. According to estimates, the average rent in the country reached £1,060 at the end of December 2021, just £1 shy of the previous record that was posted just three months earlier. Naturally, the tremendous growth has resulted in impressive rental yields from properties in the UK, with certain areas such as Liverpool and Manchester reporting returns of over 10%. Non-resident investors from all over the world could find that buying a property in the UK is becoming an ever more attractive venture.


Securing Funds

There are several possible options to find outside funding. One popular choice is a buy to let mortgage. It usually covers 75% of the property’s value. However, the buyer will need to cover the remaining 25% as well as any additional taxes that might apply, including stamp duty land tax, legal fees, and land registry fees.

Unfortunately, some lenders may not be willing to approve a non-UK resident or will offer such individuals far higher interest fees. They may also demand larger deposits. To avoid such issues and make the whole process much smoother, overseas investors could retain the services of specialized lenders or international banks to help them secure a UK mortgage on the residential property.


Tax Implications

Investors who purchase or rent a property in the UK will be liable to pay various taxes. Most commonly, these will include an Income Tax, Capital Gains Tax, and Stamp Duty Land Tax (SDLT). Non-resident investors will only be taxed on their income earned within the county and not on their entire income, which could include profits from operations in other countries. Furthermore, the income tax can be paid in one of two ways. First, the investor can earn their full income and pay the applicable tax via a self-assessment tax return. Alternatively, they can allow their lettings agent or tenants to deduct the necessary tax automatically.

When the chosen property is located in England or Northern Ireland, it will also be subjected to a Stamp Duty Land Tax. Similar taxes are also in place in Scotland and Wales. The SDLT tax is based on the purchase price of a property. Buying a second property that is not considered to be your home incurs an additional 3% charge on top of the standard SDLT rates. In addition, foreign buyers are liable to pay an additional 2% surcharge. Keep in mind that the SDLT rates start at 5% for values under £125 000 and reach 17% for sums above £1.5 million.

Under UK law, profits earned by selling a property are subjected to capital gains tax. The amount of the owed tax depends on the level of the reported profit, but other factors may also influence it. The incurred tax must be paid within 60 days from the date of conveyance. Investors considered to be non-residents of the country are subjected to non-resident capital gains tax. That tax rate also changes based on whether the non-resident investor is an individual, a company, or a trust.