The positive impact of foreign investment in the UK buy to ... · PDF filein Singapore. Hong Kong also has ... according to Knight Frank, ... The positive impact of foreign investment

The positive impact of foreign investment in the UK buy to let market

Contents

01 Foreword

02 International investment in the UK

04 Why is the UK so appealing for international investors?

06 A guide to investing in UK property

14 How the laws differ for international investors

16 Future predictions for the market

18 About Select Property

Foreword

Property in the UK has always been an attractive asset class for both domestic and international investors, as it has a worldwide reputation for being reliable, safe and, most importantly, profitable. As UK real estate has always been regarded as a secure investment type, there has been heavy spending in the market over the last few years with people favouring this asset over others that are less safe and consistent.

Investors from struggling economies and those who traditionally prefer stocks and shares have instead considered real estate in Britain for this reason. In addition to this, recent conditions have made the market very resilient in terms of capital appreciation and resale figures. Therefore, investors can be confident they will earn a considerable profit on their asset when they sell it on.

Furthermore, the rental market has been incredibly buoyant recently, presenting excellent opportunities for international and domestic investors to earn a regular income and a good return on their investment.

As a result of this, 2014 represents a great time for international investors to buy real estate in the UK; however, there are many things to consider, including the purchase process, taxes and legislation, to ensure investors avoid the common pitfalls and make the most of this lucrative asset type.

This guide aims to explain why international investors are increasingly choosing UK property for their investments, describe the process of buying, and provide advice on the best investment opportunities available in Britain.

Select Property | The positive impact of foreign investment in the UK buy to let market

01

International investment in the UK

“The UK has received a major vote of confidence from foreign investors confirming that the UK remains a world leading business destination.” Trade and Investment Minister Lord Green

“Attracting foreign investment is an important element of the UK government’s economic and growth programme and UKTI [UK Trade & Investment] will continue to work with companies to help create and sustain a globally attractive, highly competitive and truly international economy.”

Trade and Investment Minister Lord Green

The UK property market has experienced a huge increase in interest from international investors in recent years, and this trend looks set to continue as Britain boasts a number of conditions that attract property buyers from all over the world, from its stable economy to its reliable real estate market.

Overseas investment in the UK has been steadily rising recently in all market sectors, according to official government figures. The UK Trade & Investment (UKTI) reported in July 2013 that the UK is the leading European destination for foreign direct investment (FDI).

The 2013 UK attractiveness survey, released by EY, revealed the UK has held this position throughout the past decade.

According to the UK’s 2012/13 Inward Investment Annual Report by the UKTI, 1,559 investment projects were secured in Britain during the financial year April 2012 to April 2013 – an increase of 11% from the previous 12 months. The number of FDI initiatives in England outside of London in the year leading to April 2013 rose by 10%, totalling 759 projects.

The United Nations Conference on Trade and Development also reported the UK is faring particularly well considering the wider global climate, which has experienced a drop in FDI.

It stated that FDI inflows in the UK have risen by 22% between 2012 and 2013, while global FDI inflows have fallen by 18% during the same period.

International investment in UK property

As well as international investment in the UK increasing generally on the whole, an area that has seen a significant rise in interest from abroad is the real estate market. Indeed, Deloitte reported that £20 billion was spent by foreign buyers in the UK property industry in 2012.

Research from BNP Paribas Real Estate showed that 82% of property transactions in the City of London during the first six months of 2013 was made by international investors, amounting to £4.15 billion in total.

Furthermore, UK buyers accounted for less than one-fifth of all commercial transactions during the first half of the year, demonstrating the strength of international investments in the UK.

Where are investors typically from?

Investors are attracted to the UK property market from all over the world for a variety of reasons.

According to the New Statesman, Britain is a safe haven for investors from Europe, Asia and America. Investments from French companies have risen by 43% recently, while German firms have injected 18% more into the economy.

Italy is the third biggest foreign investor in the UK, as businesspeople feel the country is a secure location against its own political and economic instability.

British Consul for Milan Vic Annels said:

“Italian companies increasingly see the UK as the ideal destination to grow, succeed and access international opportunities. The exceptional Italian results reflect the capacity for recovery of the country and of its profound entrepreneurial roots, as well as its industrial excellence.”

While European investors have shown growing interest in investing in the UK, BNP Paribas reported Asian and Middle Eastern investors are increasingly keen on buying property in London too.

It revealed that spending by investors from Asia grew by 166% during the three months leading to June 2013 compared with the previous quarter, rising to £1.04 billion.

Research by property estate agents Chesterton Humberts supports this, with Chinese, Russian and Middle Eastern investors found to be among the keenest property financiers in the capital. International purchasers are particularly attracted to new build residential real estate, with this raising prices by 56.3% from January 2009 to June 2013.

Indeed, Chesterton Humberts’ sales over the 12 months leading to August 2013 show that just 15% of its buyers were from the UK, and 80% of its international purchasers were from Europe while 20% were from Asia.

Select Property | The positive impact of foreign investment in the UK buy to let market Select Property | The positive impact of foreign investment in the UK buy to let market

Chesterton Humberts’ sales over the 12 months leading to August 2013

0302

15%Of buyers were

from the UK

20%Of international

buyers were from Asia

80%Of international

buyers were from Europe

Why is the UK so appealing to international investors?

“With demand for prime new build properties set to remain robust and new supply struggling to keep up, we expect investment volumes will be higher this year [2013] than last.”

Samuel Warren Chesterton Humberts’ Head of International Residential Developments

Economic strength of the UK

Some investors are particularly keen on investing in Britain because the UK presents far more financial stability than their own country. Chesterton Humberts reported that investors from Nigeria, France and Greece have increased in the last few years, as a result of the growing political and economic strife of their respective nations. London, in particular, is regarded as a safe location for investors, as a result of its property market’s long-term successful performance and legal transparency.

Not only does the UK offer a more secure destination for investments than many countries that have been affected by the financial crisis, but the government’s actions to improve the economy recently have also attracted a lot of international interest.

The EY 2013 UK Attractiveness Survey reported the number of projects coming into the UK increased by 2.6% in 2012, amounting to 697, which is the third highest figure in the last ten years. This is likely to be the result of the UK’s appealing tax laws, its ongoing support for small and medium-sized enterprises (SMEs) and trade missions, all of which are popular among investors from overseas.

In addition to this, the growing stability of emerging markets and the recovery of commodity prices following the financial crisis means investors from these countries are becoming richer and, therefore, increasingly have the means to invest.

Attractive financial legislation

Indeed, the UK’s financial and property laws are some of the biggest reasons why investors are keen to put their money into the country.

According to the UKTI, the cutting of ‘red tape’ has helped rescue UK businesses, saving them around £1 billion in the last two years. It also reported that the proposed reduction of the main corporate tax rate to 20% in 2015 from 21% in 2013 is encouraging international investment, as this will be the lowest rate in the G7 and the joint lowest in G20.

Many countries consider the UK to have highly favourable taxation legislation compared with their own, especially when it comes to property purchases. For instance, Singapore has a steep stamp duty with foreign and corporate buyers having to spend 15% in tax on properties they buy in the country. This was a rise from 10% only one year after the levy was introduced in Singapore.

Hong Kong also has hefty taxes, with a seller’s stamp duty of up to 20% on properties that were owned for a short amount of time and a 15% stamp duty for buyers on local and non-local companies.

In addition to this, property prices in these areas are particularly high, with house costs in Singapore rising 3.5% year-on-year in March 2013, according to Knight Frank, and Hong Kong properties increasing by a huge 28% in the year to March.

High-value properties

The improvements in the UK’s property market in recent years have also encouraged real estate investors to consider a purchase here. According to Nationwide, new build properties have risen significantly in value, growing by 47.7% in price since 2009.

Samuel Warren, Head of Residential Developments at Nationwide, noted £2.2 billion was invested in luxury new build homes in 2012, stating:

“With demand for prime new build properties set to remain robust and new supply struggling to keep up, we expect investment volumes will be higher this year than last.”

Cash-rich investors also regard London property as a means to diversify from bonds, which they are currently inclined to do as a result of low interest rates and unpredictable equity markets. Comparatively, the office market in central London provides investors with better yields than bonds that typically generate between 4% and 6% with a similar amount of risk.

Indeed, Deloitte supports this by noting that foreign investors want a stable income and bond-like assets, both of which can be achieved by investing in real estate in London. Again, the UK is regarded as a safe haven for foreign investors, particularly those in emerging markets with good levels of income who are looking to diversify their interests outside of their region.

The UK has always been regarded as a solid country to invest in, but even more so recently. Here are just a few conditions that make the UK so attractive for investors:


04 05

A guide to investing in UK property

Property investment companies

The easiest way to invest for those who do not live in the country is by using a property investment company that specialises in British real estate. There are many such firms these days, with their real estate specialists typically providing advice about investment options.

Using information regarding their budget, available cash and rental yield expectations, advisors can offer the opportunity to invest in a property scheme that fits all their criteria. Investing in an asset this way typically involves buying a unit off-spec and having the property firm let out the asset.

While this can be daunting at first, it means investors do not have to be involved in researching the best location for buy-to-let (BTL) investment opportunities, find tenants to fill the property, maintain or manage the asset. These things can be difficult to do when not living in the country; therefore, getting a property investment company to handle these practical responsibilities can be particularly advantageous.

In addition to this, they put a lot of research into locating property schemes in the ideal destination for their target market, ensuring their investors the highest and most secure yields possible.

This means they do not have to do the hard work in finding the most suitable – and profitable – asset. They also sometimes offer a guaranteed rental yield for a set number of years; therefore, this guarantees rental income and profit, which would not be possible if investors did this privately.

Estate agents

Many property investors prefer to have a more hands-on approach to their investments, particularly if they already have a portfolio of international assets they manage themselves. In this case, they will simply need to find a property they are keen on in a location that has an undersupply of property for their ideal market.

The best way to look for a private sale is through estate agents, as the typical process of selling homes in the UK is by marketing them through these mediators. Investors can search the most popular estate agents on the internet, before looking at individual properties that fit their budget, the postcode they are concentrating on and the number of rooms they want on their websites.

It will be hard to view the properties when living abroad, so it is worth making a visit to the UK to see a number of assets in one go. By doing this, investors will be able to find one that fulfils their criteria and get the ball rolling with making an offer on the property. If the offer is accepted by the homeowner, investors should then contact their solicitor to oversee the rest of the process. They then get in touch with their bank for a BTL mortgage as they will want to valuate the property and see if it is worth the offer that has been made.

It can vary how long the process takes, from a few weeks to several months, but once it is complete, investors will have the keys in their hands to handle the property as they wish.

Then they can set about redecorating the asset if necessary and marketing the property, either by themselves or through a lettings agent.

Handling the property search, buying and management of a BTL asset alone can be very time-consuming and often stressful, particularly for those living abroad, which is why many international investors look for other options that will still enable them to earn a rental yield while having a distant approach to property ownership.

Investment bond schemes

For this reason, investors may want to take advantage of the UK’s improving property market without having to own or manage an entire asset themselves. In this case, they can pursue opportunities in property bond schemes.

These work by investing in a company that owns properties, thereby having shares or bonds in real estate without actually having title deeds to the asset itself. This suits a lot of investors well, as it enables them to earn a profit when the company is doing well. By picking a firm they trust and have done considerable research on, investors should be able to gain a secure income from their bonds.

It also gives them flexibility to sell their bonds when they think the market has changed or the asset is not performing as well as it once did.

These are the three main ways to invest in property in the UK, so once investors have decided which method suits them and their financial needs best, they can begin looking into finding an investment firm, property or bond they feel most secure about.

A guide to investing in UK Property

How to find property in the UK

Before investors can begin searching for their ideal real estate investment, they need to have a comprehensive understanding of the UK property market, as well as the laws that apply to international financiers.

This guide offers important information investors need to know to ensure their investment is as legal and secure as possible. This way, they can feel confident in their purchase and find an opportunity that will provide them with the greatest profit possible.


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Looking for a property in Britain when unfamiliar with the process can be challenging at first; however, there are several ways to find the ideal investment opportunity depending on the needs and flexibility of the investment and how involved investors want to be in the property they buy.

Value Added Tax (VAT)

Value Added Tax (VAT) is charged on commercial property transactions, so investors interested in this type of asset should be aware of this. VAT is 20% of the value of the property; therefore, depending on the price of the asset, this can add up to be a significant amount.

If, however, investors are keen on residential or BTL property investments, they will not be subject to paying VAT – this may indeed encourage them to pursue these types of property over commercial real estate in order to save paying the large tax.

Stamp Duty

However, it is worth bearing in mind that residential properties in the UK are subject to stamp duty. While there are variations on how much is charged, depending on whether the asset is acquired for a mixed-use development or earns a considerable amount of rent, the following is the typical proportion of levy imposed on properties as part of the stamp duty land tax (SDLT).

Freehold

This is total ownership of the asset, which means the investor has complete control over the property – subject to planning permission from the government and any restrictions imposed by the bank as per the mortgage conditions.

Leasehold

This means the investor has interest in the property for a certain period of time by an agreement with the landlord. When the lease comes to an end, the landlord retains the ownership of the property; however, it is worth noting that the lease is often very long, such as a couple of hundred of years, depending on when the lease began or was last renewed.

Investors can apply to extend the lease on a property (a flat for up to 90 years and a house for up to 50 years). There might also be the opportunity to buy the freehold from the landlord should they be willing to sell it.

Commonhold

This type of property ownership was first introduced in 2004 in England and Wales and involves owners who hold one or more freehold properties within a building with others where the common parts of the structure are part of a commonhold development.

The common parts are managed and owned by the Commonhold Association, of which the unit holders can be members to have a say on what happens to the common parts of the building.


Types of property ownershipA guide to investing in UK Property

What are the UK’s property laws?


08 09

Investors who decide they want to own their property outright are still presented with choices with regards to what type of ownership they want to have. In the UK, there are three types of ownership – freehold, leasehold and commonhold.

TaxesTaxes are a common by-product of investing in real estate anywhere in the world, and the UK has varying legislation over the duties it charges on properties, with the amount of tax charged depending on the buyer and value of the asset.

Value of the property SDLT rate

Up to £125,000 0%

Over £125,000 to £250,000 1%

Over £250,000 to £500,000 3%

Over £500,000 to £1 million 4%

Over £1 million to £2 million 5%

Over £2 million from March 22nd 2012 7%

Over £2 million (purchased by certain persons, including corporate bodies*)

15%

*Corporate bodies count as collective investment schemes, companies, and partnerships with members who are wholly corporate or part of a collaborative investment scheme.

Stamp duty land tax (SDLT) rate table on residential properties – HMRC 2013

Income tax

Another levy property investors have to take into account when buying real estate in the UK is income tax. By gaining a profit on the asset, investors are, in effect, earning an income; therefore, they are subject to normal income taxes on the amount they gain.

In the UK, most people are typically provided a personal allowance of £9,440 (for 2013-14), which is not taxable. However, any amount of money earned over this is taxed at a basic rate of 20% for earnings up to £32,010; those who gain between £32,011 and £150,000 will be taxed at 40%, while profits over £150,000 are subject to a levy of 45%, as of April 6th 2013.

The personal allowance brackets and tax rates can change every year, so it is worth paying attention to the Chancellor of the Exchequer’s annual Pre-Budget report, which typically comes out in November or December.

Capital Gains Tax

This is the levy owed on profit you make when you sell, dispose of or give away an asset, including property. Real estate investors are subject to capital gains when selling their property that is not their main residence, such as a BTL or investment property, a second home, land or business premises.

For 2013-14, Capital Gains Tax for individuals is 18% or 28%, depending on their total taxable income. Investors can work this out by determining their taxable income and seeing which band their capital gains takes them into after taking their salary into account.

Capital gains tax for individuals example:

It is worth noting how the tax is charged; for instance, the entire value of the asset is subject to the SDLT rate, not just the amount it exceeds the threshold by.

Therefore, investors who are looking for their own property should try to put an offer in below the next threshold, even if the asset is marketed as higher. For instance, a property on sale for £260,000 would incur a SDLT of 3%, amounting to £7,800. However, putting an offer of £249,000 could reasonably be accepted. If it is, a SDLT of 1% will charged, totalling £2,490, and saving the investor £5,310 in SDLT.

Obviously, the more expensive the value of the property, the greater the saving will be if investors aim to stay under the next SDLT threshold.

Investors keen on buying non-residential property or mixed-used assets, which includes commercial real estate, agricultural land, or six or more residential homes bought in one purchase, need to also consider the amount of SDLT they have to pay on the land they buy.

Example:


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Value of the non-residential property SDLT rate

Up to £150,000 – annual rent is under £1,000 0%

Up to £150,000 – annual rent is over £1,000 1%

Over £150,000 to £250,000 1%

Over £250,000 to £500,000 3%

Over £500,000 4%

Value of the property SDLT rate Tax charged

£130,000 1% £1,300

£350,000 3% £10,500

£750,000 4% £30,000

£1,500,000 5% £75,000

£2,500,000 7% £175,000

£2,500,000 (purchased by corporate body)

15% £375,000

Stamp duty land tax (SDLT) rate table on non-residential or mixed-use properties – HMRC 2013

An investor earns £15,000 as an income after deducting allowances and reliefs, and their capital gains are £19,000. Therefore, the total of these two amounts is £34,000, which is under the £34,370 basic rate band, which means the investor is charged 18% on the capital gains. The amount of Capital Gains Tax the investor will have to pay, therefore, is £3,420.






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Recording the purchase on the Land RegistryEvery property purchase in the UK has to be recorded with the Land Registry, with this listing containing details of all types of real estate in the UK.

BTL LawsFinanciers who decide to pursue a BTL investment need to also be aware of the UK laws regarding looking after a letting property.

It also provides information made available to the public regarding previous owners and will eventually hold details about the purchase of the property, including the date of completion and the value it sold for.

It also has other information about the asset, such as whether it is a freehold or leasehold, the area it occupies and any changes that have been made to the unit over the years.

There are some incidences where land is not listed on the Land Registry; this includes if land has belonged to the same proprietors for a number of years and may never have been registered when the listing was introduced in 1990.

Landlords have a lot of responsibility, particularly when managing tenants and maintaining the upkeep of the asset themselves; therefore, it is imperative that anyone who is considering buying a property in the UK with no guidance from an investment company knows everything they need to about BTL legislation.

Tenancy Protection Scheme

Investors in BTL properties in England and Wales need to be aware of tenancy deposit protection (TDP) schemes, which were introduced in 2007 to provide security for both tenants and landlords regarding the downpayment paid by residents before they move into the accommodation.

They work by putting the deposit into a protected government-backed scheme that neither the tenant nor landlord can have access to.

When the tenancy contract comes to an end, the landlord must agree how much of the deposit will be given back to the tenant. They may feel justified in pursuing some funds from the downpayment to pay for any damage caused by the resident during their time living in the property.

If both the landlord and tenant agree on the deposit that will be returned, it will be given back within ten days of the tenancy coming to an end.

However, if the tenant disputes how much deposit will be returned, they have the right to contest this through a free dispute resolution service. Both the landlord and tenant will be asked to provide evidence to back up their case, and a decision will be made regarding how much deposit will be returned.

The money is held by the TDP until a resolution is found, protecting both the landlord and tenant from the other party taking the money without resolving the dispute.

TDP schemes that landlords can deposit the money into include:

• Deposit Protection Service (Custodial and Insured)

• MyDeposits

• Tenancy Deposit Scheme

• Capita Tenancy Deposit Protection

Landlords should also be aware they are obliged to provide some useful information to their residents regarding the TDP, including how the cash is protected, the name of the TDP scheme used and its deposit resolution service, reasons why they would keep all or some of the deposit, how to apply to retrieve the payment and what to do if there is a dispute concerning the money.

Health and Safety Requirements

Landlords who manage their own properties are wholly responsible for making sure their property meets UK health and safety legislation. There are several laws landlords must adhere to before they can let out their asset, including having their gas appliances maintained and fitting the correct fire-safe furniture and doors.

A comprehensive list includes:

• Installing and maintaining gas appliances by using a Gas Safety registered engineer.

• Having annual checks on gas equipment and flues with Gas Safety registered engineers.

• Providing tenants with evidence of gas safety checks within 28 days of the examination or before moving in – whichever comes first.

• Ensuring electrical sockets and light fittings are safe to use.

• Making sure all electrical equipment that comes in the property – including TV sets, cookers, kettles, toasters etc. – are safe.

• Checking tenants have access to escape routes at all times in the event of a fire.

• Buying fire safe furniture and furnishings, including sofas, chairs and doors.

• Installing fire alarms and extinguishers in the property.

Maintaining the property

Unless a letting agent or management firm manages the property, the landlord is responsible for the maintenance and upkeep of the accommodation. This involves a number of duties, including fixing any faults that may occur in the property or replacing any appliance that no longer works.

This can occasionally involve being called in an emergency if the plumbing stops working, a burglary has taken place or the tenant loses their keys. Property owners who live overseas can struggle with being heavily involved in maintaining their property themselves, as they are limited with what they can do thousands of miles away, as well as the difference in time zone between the UK and their country of residence.

Therefore, a lot of international property investors instead choose to hire another company to manage and maintain their property for them.

Leases

When letting out a property to a tenant, you create a contract with the resident. This agreement grants the tenant with a leasehold estate. This means the tenant is given exclusive possession of the home for the period of the contract.

If landlords do not agree to this, the tenant will merely have a personal licence and investors will not have the security of them taking responsibility for the property. In addition to this, by breaking the conditions of the leasehold estate, landlords will be in breach of the contract, something that the tenant can dispute.

According to the Landlord & Tenant Act 1954, residents can renew their lease at the end of their contract on the same terms as the original lease. If the landlord wants to reject the renewals, they can only do so in a few circumstances, including if they want to use the property themselves or if they plan to redevelop it.

If so, the landlord should give notice to the tenant so they know they have to leave the property when the contract comes to an end.

Using reputable lettings agents

While it is not UK legislation to utilise lettings agents to fill rooms of BTL properties, it is advisable for investors to only use reputable companies should they decide to go down this route.

Some lettings agents might have bad reputations for not treating their tenants well, so you will want to make sure to pick one that is both trustworthy and popular among the rental market, as well as reliable and able to let out and maintain the property.

Check the agent is a registered trade body of the UK Association of Lettings Agents (UKALA), which confirms it will adhere to a Code of Practice. Another reputable organisation it might be a member of is the Association of Residential Lettings Agents, so it is worth checking what groups it is affiliated with before committing to a letting agent to market the property.





How property laws differ for international investors

Typically, non-UK residents are not subject to income tax; however, there are some incidences where investors might be charged the 20% on their BTL profit. For instance, those who have left the UK to live or work abroad permanently may find themselves still having to pay income tax in some circumstances.

With regards to property investments, overseas buyers will generally have to pay a levy on the profit they gain from the rent. This is because the rental income is derived from ownership of land based in the UK; therefore, it is considered to be a UK source of income.

This income tax will be charged at the same rate as British citizens, with non-residents having to pay between 20% and 50% of the income they earn, depending on how big their profit is.

For example, if they earn up to £32,010 per year, they will be taxed 20%, while a 40% levy will be imposed on anything above this figure and lower than £150,000 per annum.

A 45% tax will be charged on any profits exceeding £150,000, which might be something to note for property investors with a large portfolio of assets in the UK.

Investors who are either European Economic Area citizens or former Crown employees will be eligible for a personal allowance on the amount of income tax they pay in the UK.

A landlord with just one property who earns less than £9,440 per year (for 2013-14) on their investment will not be charged income tax on their profits. If they earn more than this, they will only be charged tax on the excess amount.

Landlords in the UK who are not residents in the country have to comply with the Non-Resident Landlord Scheme. They do this by registering with the HMRC, with this initiative stating that 20% tax must be deducted by the tenant or agent from the total rent they pay the landlord if their usual income is based outside of the UK.

They will deduct the tax before passing on the rent to the landlord, receiving a certificate showing that 20% of the rent has been deducted from the rent.

It is worth noting that tenants who pay less than £100 a week for their rent do not have to comply with the Non-Resident Landlord Scheme; this is despite agents still having to operate within the initiative if they collect the rent instead.

However, the HMRC could grant that the landlord should be paid the gross amount and the property investor will be then be required to input their total rental income on their tax return instead to pay the levy owed. Conditions that must be met for a landlord to be approved to receive their rental income with no tax deducted include:

1) Having up-to-date UK tax affairs.

2) Not being liable to UK income tax for the year during which they have applied.

3) Not being liable to UK income tax as they have sovereign immunes.

4) Not having had to pay taxes in the UK previously.

With regards to capital gains tax, non-residents of the UK are not subject to this charge. However, there are several exemptions to this, so it is definitely worth being aware of these, in case you have to pay this levy. Whether you are liable to pay capital gains tax will depend on:

a) If you have lived in the UK before, when you left and how long you were a British resident for.

b) If your normal home is in the UK and you are, therefore, ordinarily resident here.

c) If the property is held with the intention of doing work through a UK branch or agency.

Once you have established which property laws you are accountable for – if any – you will be in a better position to work out how profitable an investment in UK real estate will be for you.

For most international investors, investing in British property can be extremely beneficial, with there being no further restrictions on overseas investments. For instance, they can acquire as many properties as they want and earn as much rental income from their assets as possible.

The UK also presents great investment opportunities for both UK residents and non-residents, offering efficient tax structures for those who make multiple investments, and providing a hungry tenants’ market and a stable housing industry.

International investors keen to purchase a BTL property in the UK will need to find out if they are subject to British property laws. By confirming whether they are liable for stamp duty or income tax, they will have a better idea about what they can expect to gain from their property investment.

This guidance will give some indication on what laws real estate investors from overseas can expect to adhere to.


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Income Tax

Non-resident landlord scheme

Capital Gains Tax

“All parties are attracted to London by the high quality of investment stock and the mature and transparent nature of our market.”

Director for BNP Paribas in London Richard Garside

“The London property market continues to perform well as investors from the around the globe seek to take positions. London, unlike the rest of the UK, is booming due to an invasion of foreign capital rather than as a result of internal economic growth.”

Schroders 2013 Outlook – A Year in Global Property

Future predictions of international investment in the UK property market

Business interests in the UK

Lots of investors may be inclined to purchase property in the country, as a result of basing their business interests here. According to Schroders 2013 Outlook – A Year in Global Property, demand for real estate comes from technology, insurance and media tenants, who are looking to run their enterprises from the UK in order to fulfil their business ambitions.

An influx in Asian investors

The UK will benefit from an increase in investments from Asia, with Schroders anticipating the boost in the property sector in 2013 will be partly down to weakness in Asian equity markets.

Indeed, 2012 saw an influx of investments from Asia, with government-backed funds from Korea, Singapore and Malaysia having helped UK real estate as investors

are becoming increasingly worried about ambitious funds in their own countries.

According to Richard Garside, Director for BNP Paribas, deregulated economies are driving their investors towards Britain, with financiers looking for a secure and stable market to put their money in, and gain a profit on, their assets.

This has been shown already in 2013, with Asian investors ploughing £1.04 billion into the UK during the first quarter of the year, which is a huge 166% increase on investments from the region since the preceding three-month period, The Financial Times reported in July 2013.

Poor performance of other markets

The real estate industry is faring particularly well directly as a result of the unsatisfactory performance of other markets. Investors who have traditionally put their cash into bonds and shares have been left disappointed with the profits they have accrued over the last few years – if any at all.

Therefore, there has been a growing interest in property, which is regarded as stable and secure, and this popularity is expected to increase further into 2014.

This is shown with BNP Paribas Real Estate’s figures showing international buyers accounted for three-quarters of all commercial transactions in central London during the first half of 2013. Cushman & Wakefield also reported international investment amounted to £13.6 billion in 2012, which is a growth of 25% on the previous year.

Investors are put off from shares and bonds due to their low interest rates and unpredictable markets at the moment. Comparatively, real estate is seen as extremely stable and most likely to rise in value over time.

Property in England and Wales typically provides yields of between 4% and 6%, with LSL Property Services revealing the average rental yield for BTL investors in October 2013 was 5.4%, offering a rental income of £758 per month.

While investors are generally keen on London real estate, the results of LSL Property Service’s findings show the north-west is the best location to invest in, offering rental yields of 7.3% in October, compared with London’s 5.2%.

LSL Property Services predicted BTL investors can expect annual rental returns of 14.5% in the year leading to October 2014 if positive trends in the UK housing market continue, amounting to an average value of £24,921 per property.

Property values are also steadily on the rise, with the Office for National Statistics reporting UK house prices grew by 3.8% during the 12 months leading to September 2013, which follows a 3.7% increase in the year to August 2013.

With these compelling reasons, it is not hard to see why the UK property market is becoming increasingly appealing for international financiers. As a result of this, many experts predict foreign investment to grow further into 2014, with these purchases providing a much-needed boost for the country’s wider property market.

International investors have become increasingly interested in buying property in the UK, and this trend does not look as though it will slow down anytime soon.

Predictions across the industry state that international investment will pick up more over the rest of 2013 and beyond, with financiers being drawn to UK real estate for a number of reasons.


16 17

“A powerful surge of capital accumulation is re-joining solid rental income. And it seems that potent combination means landlords can look forward to even better returns over the next 12 months.”

David Newnes Director of LSL Property Services

Select Property | The positive impact of foreign investment in the UK buy to let market

About Select PropertySelect Property is a property investment company, offering lucrative buy-to-let opportunities in Dubai and the UK. It is also the master sales and marketing partner to Vita Student, the first luxury student property brand in Britain.

We are committed to sourcing the very best products in our territories to provide the desired rewards to our customers, choosing only developments that deliver on price, payment, location, investment and security.

Select Property offers a complete service, from buying a property, to letting it out and then handing it over. As the buy-to-let sector both internationally and in the UK continues to grow, Select Property will be able to respond to the increasing demand for property investments, offering prospective landlords the best opportunities and high yields.

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Sources

www.schroders.com/tp/assetclass/property?id=a0j50000002wVfyAAE

https://c.na3.content.force.com/servlet/servlet.ImageServer?id=01550000000tkxXAAQ&oid=00D300000000M2BEAUwww.ons.gov.uk/ons/rel/hpi/house-price-index/september-2013/stb-september-2013.html

www.landregistry.gov.uk/media/all-releases/press-releases/2013/market-trend-data-august-2013

www.chestertonhumberts.com/news/Foreign-investors-remain-hungry-for-New-Build-London-property/

www.lslps.co.uk/documents/buy_to_let_index_sep13.pdf

www.scfgroup.com/UK_and_Overseas_Property_Investments/Investing_in_UK_Property/

www.herbertsmithfreehills.com/-/media/HS/L050712154578912171416219.pdf

www.shipleys.com/__data/assets/pdf_file/0013/11245/Targeting-Britain.pdf

www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9144087/UK-tax-system-helps-foreign-property-buyers.html

www.interfis.com/articles/international-tax-considerations-relating-to-uk-property-investment

www.hmrc.gov.uk

www.gov.uk

www.arla.co.uk

www.primefind.net/latest/foreign-investment-uk-real-estate-2013/

www.landlords.org.uk/agents/press/releases/how-find-good-letting-agent

www.cml.org.uk/cml/policy/issues/37

www.mondaq.com/x/157814/Property+Real+Estate+Tax/TaxEfficient+Investment+In+UK+Property+For+NonResidents

www.which.co.uk/money/tax/guides/tax-on-property-and-rental-income/

www.selectproperty.com/investment-property/

www.selectproperty.com/buy-to-let-property/

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The positive impact of foreign investment in the UK buy to ... · PDF filein Singapore. Hong Kong also has ... according to Knight Frank, ... The positive impact of foreign investment