The UK used to enjoy the property boom before the economic meltdown in 2008. Initially, before the meltdown, the property value used to soar and at some point, the value of properties rose by 200%. This paper gives an overview of economic standings of UK property. It gives an illustration of the information for building to be rented i.e. rent trends, legal considerations and local taxes in the UK.
Rent Trend
From the current statistics, the UK rent trend that might affect the building to be rented is;
The interest rates staying low; it is expected that another 0.25% hike during the late spring, this is based on the Bank of England base rate to 0.75%. This implies that there will be the addition of £22 to the typical £175, 000 tracker mortgages. However, with more ½ of the borrowers using fixed rates, such trends may go unnoticed by most of the property owners.
House building likely to rise; the UK has seen a rise in the new home building since recent statistics shows that 217,000 houses were recorded in 2016-2017; this is 20% more as compared to the previous year. The same trends are likely to extend in the coming years.
Stamp duty cut and help to buy continues to pop up; For instance, Philip Hammond which is one the key players in real estate business in the UK abolished stamp duty for all properties of up to more than £300, 000 purchase made by first-time buyers with immediate effect in the budget. This move is likely to save four out five of the first time buyer’s amount of more than £5, 000.
The Legal Considerations
The UK property market continues in attracting more investors who are aiming at boosting their portfolios in upmarket housing, off-plan apartments among others. The UK has no controls as far foreign ownership or occupation of UK real estate is concerned. The legal considerations are;
Acquisition Vehicle; one should consider certain matters such as funding laws, taxation and suitable investment structure.
Ownership; usually the real estate in the UK is held either by outright i.e freehold or for a fixed number of years (leasehold); which is typically ninety-nine year or more so that it ensures that leasehold asset has a capital value. Unlike other jurisdictions, a leaseholder in the UK usually holds an interest in land. This is contrary to enjoying merely a contractual right with the aim of occupying the relevant property.
Title due diligence; before the acquisition or building of a property, the buyer/ one who builds usually has to review the seller’s title to the property. The law states that the buyer must submit a series of standard property searches and commission suitable reports that are not limited to survey. After submitting such information to the land register; they will provide the following;
ü Registered owner confirmation.
ü Confirms if the property is leasehold or freehold.
ü Confirms if the registered owner has a clear unfettered title or lesser class ownership.
ü Give details of any third party rights that might benefit or burden the property.
Taxation laws locally
The research carried out on UK properties shows that with good planning, overseas investors can enjoy considerable tax advantages as compared to domestic investors. Some of the local taxations and how they benefit investment are as follows;
Stamp Duty Land Tax (SDLT); It is payable by the buyer immediately after acquiring the property. With the recent changes, SDLT has been brought into line with the residential system.
The Value Added Tax (VAT); the buyer also need to pay the VAT on building any property in the UK; this occurs if the seller has “opted to tax”. Again, the buyer can mitigate against VAT liability though filing his/her own option tax before the transaction is completed; this makes the transaction to be considered as a transaction of going concern.
The tax domicile; in the UK, the concept of tax domicile tends to impacts on individual income tax, capital gains as well as inheritance taxes. These include the tax on acquisition and tax on disposal as discussed above.
In addition to discussed above tax, others are;
Inheritance tax; this is for non-domicile individuals; however, it applies to a certain lifetime. For example; there is 20% tax on chargeable on lifetime gifts of UK property in excess of £325, 000.
The business rates; these are payable every year (ending as at 31st
March) by the person who buys or builds a non-residential property.
The information covered gives blueprint concerning the current state of UK properties business. When considered, it offers a good planning for both local and overseas investors.
