Buy a UK Property Overseas - Understanding the Laws


23 Jul
23Jul

If you are thinking/planning of buying a property in the UK from overseas, then you must plan this and must read and follow all the laws.

You need to check if non-residents are allowed to buy the property. As of the UK, you are allowed to buy the property and rent it. 

Currently, if you are from the EU, then there is no problem what so ever but from 1st January 2021, laws are changing, and all EU residents will be treated as non-residents.

This will be a cash purchase. But if you need to mortgage, then the lender will have to do checks on the property to ensure that it offers good security for the loan. 

The best way to arrange a mortgage is to speak to a broker specializing in overseas mortgages, as they are familiar with the lending criteria. As you are a non-citizen, you are in your lawyer's hands or your agent, so be very careful.

Top Tips for Purchase of Property

  • Research is very important, and you must follow the laws for buying and renting the property.
  • Insist for written confirmation of what has been agreed in any negotiations you have had and can be put on paper and ensure that you get receipts for the monies paid.
  • Make sure the seller or property developer owns the title deeds to the property or land and can be transferred to you if it is a new property; check that the title deeds for the property in question do exist.
  • Make sure that the title deeds are not offered as collateral to any financial institution for loans.
  • Please make sure that all the utility bills, local taxes, etc., are fully paid up; otherwise, this will be your responsibility to pay them once the property has been bought.
  • Make sure all utilities, e.g., water, electricity, and sewerage, are connected for use and that you will be able to use them.
  • Also, speak to the neighborhood, whether any flooding or power cut issues within the area.
  • If you are buying from a developer, ask for their completed projects, speak to the owners, and ask if they have had any problems.
  • Also, establish if the developer has any outstanding commitments to utility suppliers, e.g., Water Sewerage, electricity, etc., to the development. 

Make yourself satisfied with what you are happy to purchase. Also, check the inheritance law as there will be an inheritance tax to be paid after you are deceased. 

Make sure you have done your research; you must analyze and compare the products and services offered by different high-end companies. 

Do not be lured into taking a mortgage through your seller or agent. If you are doubtful about the terms and conditions, then ask the lender to clarify. Once you sign the agreement, you will have no options, and you will not cancel the agreement.

Tax laws for land and property in the UK have become more complicated and have become less beneficial.

To understand the new rules and their implications for your portfolio strategies is very important. And it is very important that your ownership structures all the risks and being Tax efficient.

A heap of measures has been eliminated the tax benefits of indirect foreign ownership of UK residential ownership.

  • The maximum rate of Stamp Duty Land Tax (SLDT) at 15%
  • A dedicated Tax Charge called the annual Tax on Enveloped Dwellings (ATED)
  • New rules to bring it more fully as the UK inheritance Tax (IHT) net

There is an additional 3% Stamp Duty Land Tax added to the standard rate of Stamp duty land tax if the property you are currently purchasing is in addition to another property you own elsewhere in the world. This additional rate applies from 8th July 2020 to 31st March 2021

In the interim, a new tax avoidance rule specifically targets disposals of foreign entities with at least 75% of their value in UK land and property. This allows HMRC to counteract any Tax advantages derived from such sale.

Key Decisions

Confronted with more and more difficult tax landscape, non-resident property developers must consider two crucial questions – neither of which have simple answers:

  1. Should new investments in UK property be made via foreign entities?

Under current rules, there can be tax advantages to purchasing UK commercial property via an overseas company.

But the opposite is the case for residential property, thanks to ATED, the higher SDLT rate, and greater IHT exposure. Unless that is, the property being purchased is to be redeveloped or let on commercial terms to a third party with no connection to the owner.

b)  Should properties be held in foreign corporate entities stay that way?

If buying a property for their own use, non-residents should consider collapsing any existing property-owning companies to avoid ATED and other potential tax liabilities.

Selling a company's shares (instead of the property itself) will attract a much lower SDLT rate than a property sale. But the gains will likely be eroded by the commercial risks and higher transaction costs of selling a company.

The tax rules affecting these decisions are highly complex. There will be a combination of commercial and personal priorities to weigh up alongside the tax implications. Expert technical advice will be essential when structuring your foreign-owned UK property portfolio.

To get this advice, you can speak to our advisors via www.onlinecompanyregister.com or email info@onlinecompanyregister.com

Seek Independent Legal Advice

Many property owners end up having problems because they do not seek independent legal advice but have used lawyers and translators recommended by estate agents or developers and, in some cases acting for both parties. 

It would help if you appointed an English-speaking lawyer licensed to practice and is experienced in property sales.

You must check they are registered with the Law Society in the UK and are experienced in international transactions and make sure that they hold Indemnity Insurance.

Use of a Translator or Interpreter

If you do not understand English, then you must hire some who can translate English to your language so that you understand what you are being told instead of falling into unwanted trouble. 

Make sure that the interpreter is always with you during meetings. Do not use an interpreter recommended by the estate agent.

Additional Costs

There would be a range of additional costs besides the purchase price when buying a property. Some of the universal costs that would be incurred anywhere you buy a property are:

  1. Fees for a financial advisor who will manage your tax matters both in the UK and overseas. You may be liable to pay taxes if you sell the property.
  2. Fees for a surveyor (Chartered) or quantity surveyor.
  3. Mortgage Fees: They could include a mortgage broker fee, an arrangement fee, and an administrative fee for the bank to appoint a legal representative to manage payment of taxes and the inscription of the title in the property register.
  4. International Bank transfer fees, which you should be discussing with your bank presumably in advance before the transaction.
  5. Bankers Draft/Bank guaranteed cheque fee; this should be negotiated by yourself.
  6. If required to arrange a POWER of Attorney.
  7. If you are shipping, then shipping and insurance costs.
  8. Translation fees
  9. Connection Charges for Water, Sewage, electricity, etc., if required.

Buying ab off-plan property

There is a higher risk to do this than buying a resale property 

If you wish to buy an off-plan property or property under construction, then there are a number of points you need to be careful of:

  • Always make payments to the developer or others with a bank guarantee.
  • Make sure that the contract you sign with the developer includes the obligation to refund all advanced amounts plus interest to the purchaser if the developers fail to start the construction or complete the construction within the deadline agreed in the contract also if the habitation certificate is not issued.
  • Make sure that the terms of the bank guarantee are read and understood before making any payments in respect of the property.
  • Ask the legal team / financial advisor to ensure that the financial institution issuing the guarantee is authorized to offer such guarantees before making any payments.
  • Keep all copies of the payments made detailing the exact amounts paid.
  • Above all, documents related to the purchase of the property and obligations of the developer must be kept safe just in case if an issue arises and the property is not completed in agreed times. It would help if you executed the Bank guarantee.

What should be done by you when something goes wrong

If you think you have been the victim of fraud, and you do not have the insurance cover or Bank Guarantee, then you should look for Independent legal advice and take legal action with the help of the Courts.

You are liable to pay tax on your rental income to HMRC. If you earn more than £10,000.00 per year, then you must report it to HMRC as you pay Tax on profit on the rental income.

There are expenses you can claim (allowable expense) on the Rental income if you have rented the property:

You should be able to ask your accountant if you can claim these.

  1. The Agents Fee
  2. The accountant's fee
  3. Ground Rent or service charges paid by you on the property
  4. Any council tax that is paid by the landlord
  5. Insurance costs paid by Landlord
  6. Maintenance costs for the property
  7. Any utility bills paid by the landlord
  8. If there are any additional services like window cleaning or cleaning can be claimed.
  9. Specific travel related to the property can also be claimed. 

As an investor, you need to be very careful and appoint your legal advisor / financial advisor with care. 

Your one-stop-shop would be Stephen MS Lai & CO. CPA Ltd, and you can contact us via www.onlinecompanyregister.com or info@onlinecompanyregister.com

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