Property Tycoon or a Typhoon of Restrictions to Discourage Foreign Investment?

Of course Clark, I live for this stuff!

Of course it is! Even in the current climate with the coronavirus pandemic, the average asking price for a house coming on to the market hit £324,000 in October 2020, 5.5% higher than a year ago. This is the biggest rate of annual increase for over 4 years.

While the performance of the housing market has been extremely strong since lockdown, it is difficult to predict if it will remain immune to the economic impact of the coronavirus pandemic.

At the moment all signs point towards a continued housing market boom.

I’m a property guru, so yes, absolutely!

Unlike house prices, private rents have taken a beating in London due to the coronavirus pandemic. Private rents in London have dropped for the second quarter in a row. Apart from London, rents across the UK rose by 2%.

The rise in homeworking since the outbreak of the virus has led to increasing numbers of homeowners and renters moving out of big cities to suburbs, smaller towns and more rural areas in search of bigger homes, cost savings and green space.

The rental sector will recover slowly from lockdown. However, if your client is buying outside of London, he should still get a good yield. If he is looking to buy in London, although rents have fallen it is anticipated that they will bounce back in 2022 and 2023.

Brexit, it’s like the UK got drunk and accidentally unfriended Europe on Facebook.

Ironically Brexit has resulted in more foreigners investing in property in the UK.

Well, Britain’s decision to exit the European Union was predicated in part on a desire to reduce immigration! Instead, estate agents I know have been swamped by investors from China, the Middle East and India.

Yes, absolutely. A weak pound makes foreign investment more attractive because you get more for your money.

Actually, there are no restrictions on overseas investors acquiring UK real estate. Real estate can be purchased, rented, or leased by individuals or companies, whether domestic or foreign.

Also, our legal system and legal due diligence process that needs to be carried out on any residential or commercial property acquisition will give comfort to your client.

Well, the UK has one of the strongest legal systems and Public Registry… and of course I’m a great property lawyer!

Ownership of land and property in England and Wales is registered at HM Land Registry, which is a non-ministerial department. This ensures that the seller purporting to sell the property to your client is not doing so fraudulently and your client will get a Title document for the property as evidence of his ownership.

Yes, we do. In relation to any physical defects in the property, I can introduce your client to a professional surveyor. The surveyor will inspect the property and prepare a survey report confirming the condition of the property and the survey report will also give a valuation for the property so your client has comfort he is not paying over market value.

On legal issues relating to the property, that’s where I come in. As your client’s lawyer I will undertake various legal due diligence on the property. This will include undertaking property searches, investigating the property Title and reviewing enquiry forms provided by the seller. Prior to committing to the purchase of the property your client will get a Report from me explaining the results of the due diligence process highlighting any adverse matters your client should be aware of.

I would say UK law is pro-landlord!

UK renters have fewer rights than those in other European cities. Landlords can ask tenants to leave the property after the initial fixed-term rental period ends, which is normally 12 months. This is done by serving on the tenant a Section 21 notice giving at least two months’ notice (currently 6 months under the Coronavirus Act 2020) so that the tenant has time to find a new property and get their affairs in order.

If the tenant does not vacate on expiry of the notice, the Landlord can apply to the court for a standard possession order. It’s called an accelerated possession order.

Landlords will have certain obligations.

Providing to the tenant at the start of the tenancy:

• Energy Performance Certificate;
• Gas Certificate;
• a copy of the government’s ‘How to Rent’ guide;

and ensuring that any deposit your tenant pays is kept in a Tenancy Deposit Protection Scheme.

If the tenant fails to pay the rent, the landlord can serve a Section 8 notice. This gives tenants two weeks’ notice to pay the arrears or to leave the property (currently 4 weeks’ notice where arrears are at least 6 months and 6 months’ notice where arrears are less than 6 months), regardless of whether the fixed term has ended or not. The Landlord can then commence Court action.

There is no straightforward answer to this I’m afraid. All investors should consider whether or not to purchase investment properties using a company. It is vital that your client gets the ownership structure right as this could make a difference to the amount of tax your client pays.

Our tax advisors can assist in this respect.

Prior to 2015, there was no real compelling need for investors to buy properties within companies. Especially when considering mortgages for companies were less competitive. But since the changes to the treatment of mortgage interest introduced in the summer of 2015, there has been a shift towards properties being purchased within a company structure.

What makes the company route far more appealing now is that corporate mortgages are far more competitive.

Andrew Thomas our Financial Services Expert will be able to assist as he works with access to the whole market and regularly arranges ltd company mortgages for new and existing.

Purely from a financial perspective, the rate of Corporation Tax is far lower than the higher rate of income tax, which is a big saving.

Your client would still be taxed on the dividends if he takes profits out of the company, but your client could time dividend payouts for maximum tax-efficiency. Alternatively, just leave the profits rolling up within the company to buy the next property.

I have heard a lot about ATED. Will it apply to my client if he decided to purchase the property using a company?

It depends on the value of the property. ATED is an annual tax payable by companies that own UK residential property valued at more than £500,000.

For a property valued between £500,000 and £1 million, the annual charge is £3,600.

Your client may be able to claim relief from ATED if the property is let to a third party on a commercial basis.

Saying on the issue of tax, is there anything I should mention to my client about SDLT?

Stamp Duty Land Tax (SDLT) is a tax charged on ‘land transactions’ payable by the purchaser on the purchase of property or land in England where the amount paid is above a certain threshold.

SDLT rules are complex and the rates differ for residential properties purchased by individuals and companies.

Erm… yes, perhaps Clark.. but what people will need is advice on Stamp Duty as it’s a key fact in deciding whether or not your client purchases the property in a company.
The only two points I would add in relation to SDLT are:

1. As an individual, a higher rate of SDLT will apply to your client on the purchase of a residential property if he owns another property anywhere else in the world. See below.

There is however a temporary reduction in SDLT rates until 31 March 2021. No SDLT is paid at all up to £500,000 of the purchase price for residential property. Significantly, it also benefits buyers caught by the 3% Higher Rate on additional dwellings, as such buyers who already own another residential property now only pay SDLT at 3% on the first £500,000.

2. As a corporate entity purchasing a residential property over £500,000 the rate of SDLT will be a flat rate of 15% on the purchase price. This can however be reduced if the company is a qualifying property rental business.