Aspects of Buying UK Property
1. Legal Ownership
You will need to decide at an early stage the best way to legally own the property, in light of your personal circumstances and tax consequences. You can purchase property in your sole name, joint names with a spouse for example, or using an offshore company. For those who will be non-resident in the UK and who intend to purchase the property for the purpose of investment, it is generally advantageous for tax reasons to acquire residential property through an off-shore company (please see point 7 - Taxation). Your solicitors and tax advisors will be able to advise you further in this respect.
2. Title (Freehold, Leasehold, or Share of Freehold)
2.1 Freehold property
If the property is freehold, this means that both the property (i.e. house or flat) and the land on which it is built are included in the sale. Houses are often sold as freehold. A freehold title is outright ownership.
2.2 Leasehold property
A leasehold property is one which is owned for a number of years (ranging from as little as 1 year to 999 years). After which time the property will revert to the freeholder. In other words, if you buy a flat on a 63 year lease, in 63 years time it will have to be handed back to the freeholder. However, under English Law, the owner of the leasehold property has the right to extend the lease for an additional term of 90 years subject to certain criteria (i.e. in the example above to add 90 years to 63 years to give a total of 153 years). Most flats in London are leasehold. The length of the lease of the property will of course be reflected in the price. You should check the length of the lease on the property you are interested in buying. Your solicitor will formally report to you and advise you on the exact length of the lease during the buying process.
In England, you can obtain general advice about leasehold from:
The Leasehold Advisory Service (LEASE)
31 Worship Street
Tel: 020 7374 5380
Fax: 020 7374 5373
2.3 Share of Freehold
Due to changes in the law, many apartments are now sold along with a share of the freehold of the building. A group of leaseholders living in the same building may have a right to collectively buy the freehold of the building or take over its management.
3. UK Money Laundering Regulations
It is important to be aware of the documentation that all solicitors and financial advisors will require from you in order to satisfy the UK money laundering regulations. You should ensure that you have this documentation available immediately at the outset of the transaction, or the transaction could be delayed. Please note that all documentation referred to below must either be originals or copies of the originals that have been certified by a qualified lawyer or notary local to you:
(a) Evidence of your identity: Acceptable documents include a current passport, current photo driving licence, national photographic identity card, birth certificate.
(b) Evidence of your address: Acceptable documents include a recent utility bill, a recent bank or credit card statement, national photographic identity card.
4. Transferring money
You must consider the regulations governing the transfer of funds into the UK and potential difficulties that may arise. Your solicitors will require a letter from your bank from where you wish to transfer the money, confirming your identity and the source of the funds that you wish to transfer. In addition to these UK requirements, you must also check with your own bank as to their own local federal requirements concerning the transfer of money out of the country. Our experience has shown that many local banks have strict controls about transferring any significant sum of money of money out of the country and there may be numerous time consuming requirements that must be fulfilled by you in order to affect such a transfer. It is important that you find out what these are at the outset of the transaction in order to avoid delays further down the line, which could jeopardise your purchase.
There is no requirement for you to open a bank account in the UK.
5. Solicitors Client Account
Your solicitors will in due course, require you to transfer the deposit funds to their client account to be held by them in readiness for exchange of contracts
(see “The Legal process of buying property in the UK” below).
Your money is safe with your solicitors who will hold it strictly pending your instructions, and if the transaction does not proceed, this money will be returned to you with any applicable interest. It is important that you are able to arrange to transfer deposit funds without delay when this is requested by your solicitors.
6. Stamp Duty Land Tax (SDLT) Rates
The amount of SDLT payable is a percentage of the purchase price of the property, on a sliding scale as follows:
Purchase price (£ Sterling) : Stamp Duty (% of purchase price)
125,001 – 250,000: 1
250,001 – 500,000: 3
500,001 and over: 4
Often when you are purchasing a leasehold property, the freeholder will require references to confirm that you are an acceptable prospective tenant. Usually a banker, accountant and solicitor reference will be required although this can vary depending on individual freeholder requirements. Where the property is to be purchased through a company, it may be necessary for the directors to provide personal guarantees in respect of liabilities under the lease. It is also not unusual, particularly in the case of an offshore company, for the freeholder to also require a sum to be deposited by way of security in respect of service charge liabilities.
It is important that you obtain the relevant references as requested by your solicitor as soon as possible, so they can be submitted to the freeholder without delay.
As an overseas buyer, the most tax efficient method of owning property in England must be considered. There are a number of possibilities detailed below. Please note that the following relates only to UK taxation and it is important that you consider any tax implications in your own country of residence.
8.1 Non Resident Individual
If you are not intending to be resident in England for tax purposes then you may consider owning a property in your own name. The following tax positions will be applicable:
• Capital Gains Tax:There will be no tax payable on any financial gain made when you sell the property.
• Income Tax: You will be liable to pay Income Tax on any income derived from the property (such as rental income). However if you have raised finance from a bank or lending institution for the purposes of purchasing or improving the property so that it can be let to a tenant, then you should be able to offset from any income, the interest costs arising from the loan. You should also be able to offset against that income the cost of managing, maintaining and repairing the property.
• Inheritance Tax: There will be a potential Inheritance Tax liability on the value of the property should you die whilst owning a property in England. The tax would be charged by reference to the total of your assets located in England and is at a rate of 40% above certain exemptions.
8.2 Off Shore Company
The tax position would be very similar to that of a non-resident (as described above), the difference being that there would be no potential liability to Inheritance tax and the company would be liable to Corporation Tax on profits arising in the UK, rather than income tax. There are slightly different rules applying to what can be offset against the income for purposes of calculating taxable profits.
8.3 Resident Individual
If you are intending to reside in England for tax purposes the position would be as follows:
• Capital Gains Tax: This tax will be payable on any financial gain made on the sale of the property at a rate of 40% of the amount of the gain, unless the property is your principal private residence.
• Income Tax: You will be liable to income tax in any income derived from the property at the applicable rates.
• Inheritance Tax: There will be a potential Inheritance Tax liability on the value of the property, should you die whilst owning the property in England.
Before selecting a particular structure under which you wish to purchase property, it is important to take detailed tax advice and to consider creating or updating your Will in England to ensure that you maximise any tax benefits available to you.
The process of buying UK property:
A guide for understanding the process of buying UK property
- Pre-Exchange of Contracts
- Exchange of Contracts
Click here to read more.
For more information, please contact Harrods Estates:
82 Brompton Road
Tel: +44 (0) 20 7225 6506
61 Park Lane
Tel: +44 (0) 20 7409 9001
Email: Harrods Estates
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