Buying Property in the United Kingdom
Introduction
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The UK is Europe's third most populous state, and a world economic leader. The country boasts a rich history and, despite high immigration figures, most parts of the UK cling onto a strict sense of their own particular cultural identity. The United Kingdom abounds with monuments, interesting architecture, museums, traditional pubs, tea rooms and world-class theatre, cinema and music, making it a year-round destination for visitors from all corners of the globe.
It also hosts the world’s largest population of Australians and New Zealanders outside of their home country – so there is a rich Antipodean culture and history, particularly in London. For that reason, and family connections, Australians own more property in the UK than in any other country in the world.
For people resident outside the UK arranging finance for property purchases has usually been difficult; with some UK domestic banks simply refusing to lend to Australian residents. Of course, this limited the potential for purchasing significantly. Also, with Australian tax rules now allowing you to treat offshore properties in much the same fashion as Australian domestic investment properties – as long as you meet the same qualifying criteria – it can be more tax effective to use finance.
The UK property market is well developed, has a broad range of property options and locations, and thanks to the population and large volumes of people that rent, traditionally above average rental yields. Note however that the ability to borrow will vary depending on where you are buying and the type of property you are considering.
If you would like us to assist in arranging finance, or any other aspect of your purchase in the UK, please complete an Inquiry Form and we will respond promptly and courteously. We can also provide access to tax services that can complete both your Australian and UK tax returns – in an integrated fashion that ensures that you are fully compliant across both countries and tax effective. The interest rates below are in respect of current "buy to let" mortgages in the UK.
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Interest
Loan Type
Max LVR
Repayment Method
Min Loan
£ Redemption Penalties
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| 3.99% | Variable | 60% | Repayment | 50,000 | First 3 years |
| 4.49% | Variable | 70-75% | Repayment | Min 25,000 Max 500,000 |
None |
| 5.99% | Fixed for 5 years | 70-75% | Repayment | Min 25,000 Max 500,000 |
Economic Cost |
Purchase Considerations
Tax Considerations
Non resident Landlords (as well as UK residents) will be taxable upon the rental income if the property is to be rented out. The interest on the loans to buy the property are deductible against this income, as are all the ordinary costs of maintaining the property. If you make a loss it can be offset against other UK income or otherwise carried forward to the following year and deducted from future taxable rental income.For UK residents capital gains tax applies on the gain arising on sale of property above the exempt allowance (£10,000 in most cases). The rate of tax depends on your total taxable income (prior to June 2010 a flat rate of 18% tax applied) such that the tax will either be 18% if your total UK income is less than £37,500 including the capital gain; or 28% on that portion of gain that takes total income above this threshold.
It's useful to know that when an investment property is owned jointly, and then sold, when calculating capital gains both parties will receive the benefit of the exempt allowance of £10,000 thus reducing the taxable capital gains by £20,000.
For residents planning to leave the UK, timing is important in relation to selling your UK rental property. Ordinarily there will be Capital gains tax to pay as a resident however there is no tax if you are considered to have permanently left the country first (and then sold the property). Permanent is essentially summarised as "not returning to become a resident again for 5 completed years".
Australian residents who own UK property will need to complete tax returns in both Australia and the UK. The net property profit, calculated according to UK rules, will be included and taxed in the UK return. The Australian return will also need to include the net property profit, but this time calculated according to Australian rules. To prevent double taxation, relief for the UK tax can be claimed in your Australian return in the form of a Foreign Income Tax Offset (FITO). You also need to deal with the complications arising from the fact that the UK and Australia have different tax years and the need to translate the UK income and expenses in to dollars. Legal Considerations
Transferring ownership of UK property between spouses is capital gains tax free and it may also be stamp duty free (as a gift). Otherwise, you will pay property stamp duty upon purchase; the exact percentages can range anywhere from 1% of the purchase price to 4%. (The 4% maximum comes in on properties that cost over half a million pounds).
Non-residents are exempt from UK Capital Gains Tax; however, one issue could be UK Inheritance Tax (IHT). Even though the owner is resident outside the UK, as the property is physically situated in the UK, it would be potentially subject to UK Inheritance Tax. The threshold level of minimum total asset value before IHT is charged is quite low at £325,000 for a single person. The inheritance tax rate is 40% on the value of assets transferred to beneficiaries, above the threshold.
Assets can be transferred intra-marriage upon death tax free and potentially double the tax free threshold can be obtained by the surviving partner.
There are some property ownership strategies to consider here as a non-resident that could significantly reduce or eliminate the inheritance tax, one such strategy could involve ensuring the property is owned by an offshore company or trust rather than an individual. These rules create some opportunity to ensure you plan purchases and disposals carefully, and illustrate why professional advice is both useful and necessary.
Shared Purchase Opportunities
We maintain a register of people interested in sharing in the purchase and use of property in the UK. If you would like to be added to the register please advise us, using the enquiry form, and we will forward a data form for completion. There is a registration fee of Euro50.
