UPDATED: 12 Apr 2019
You’ve thought long and hard, and have decided to invest in UK property. What happens next? This article will guide you through the different stages of the UK property investment process.
It starts with choosing a property that fits your budget and investment goals and appointing an agency that can take you through the purchase process. Unless you don’t mind the hassle of traveling to and from the UK to deal directly with the developer/seller, a good agency will help you select developers carefully, i.e those with a good track record of completing projects on time.
It is important that your agent works closely with the developers, facilitating communication from the developer to you, and vice versa.
1: Property Reservation
We recommend investments based on your goals and budget, and once you have decided on the property for investment, you will need to sign Reservation Forms and a Solicitors Appointment Letter.
Several payments are required at this stage:
- Reservation Deposit*: approx £5,000 (forms part of the purchase price, non-refundable)
- Administration Fees: £800
- Legal Fees*: Between £700 to £2000
*Payment can vary depending on project/developer/solicitor
CSI Prop works closely with a panel of recognised solicitors in the UK. We’re happy to recommend our panel, but you may use solicitors of your own choosing.
Before proceeding with the contracts to purchase your property, your solicitor will activate the Anti-Money-Laundering process.
2: Anti-Money-Laundering Checks
The Anti-Money-Laundering process is a very important part of buying UK property, and is done by your solicitor on behalf of the UK Government to ensure that your purchase funds are not related to suspected money-laundering and terrorism links. Your solicitor will ask for proof of your identity, residential address, availability of funds and its sources.
3: Exchange of Contracts & 1st Payment
Once you have completed the Anti-Money-Laundering process, you will need to sign the Sale and Purchase Agreement. This is normally done within 28 days of your solicitors receiving the contract from the seller’s solicitors. Together with this Agreement, you will make your first payment to the developer via your solicitors. This amount varies from one developer to another.
Progress payments apply for some projects, e.g. UK commercial student property, and the timelines for these payments will be stipulated in the Agreement.
You may apply for financing while purchasing UK residential property with a value in excess of £100,000. Application for financing can be done 3 to 6 months before settlement, and the banks will assess your financing position and eligibility. Documents which are typically required by the bank include:
- 3 to 6 months salary slips
- 3 to 6 months bank statements
- Income Tax Return Form
There are typically no application and processing fees to finance your property. However, the legal fees can incur up to 1.5% of the value of your property. There are several banks in Malaysia and internationally that offer financing. Please get in touch with us to find out more.
5: Final Settlement & Stamp Duties
When your property is nearing completion, the developer will send a Completion Notice to your solicitors. You will need to make full payment for the property at this stage, which is also known as the final settlement, and pay any applicable stamp duties to HM Revenue & Customs (HMRC).
Stamp duty is a percentage of the property price, which varies based on the value of the property, and whether it is categorized as residential or commercial (e.g. UK commercial student property or care homes).
CSI Prop can recommend a tax agency to assist with filing and paying the tax on your behalf. Otherwise, you can file the return and pay the taxes yourself.
Stamp Duty for UK Residential Property
You will be entitled to stamp duty rebates if this is your first or only residential property purchase globally. Most investors already own a house, hence the following stamp duty rates will apply:
Stamp Duty for UK Commercial Property
For commercial property, you don’t pay any stamp duty up to £150,000. You pay stamp duty of 2% for the next £100,000 (the portion from £150,001 to £250,000). Any portion above £250,000 is charged at 5%.
6: Property Management
When you exchanged contracts with the developer, you may have signed an agreement to hire a letting agent. You may also have chosen to manage the property yourself.
The letting agent will ensure your property is well-maintained, taking care of all expenses involved, and collecting the rental on your behalf.
Note that a condition applies when buying UK property with a rental assurance (such as UK commercial student property). Buyers will have to use the letting agent prescribed by the developer for the whole duration of the assurance period to qualify for the rental assurance.
7: Rental Income
You will need to pay income tax to the UK Government once your property starts generating rental income.
We can recommend a qualified professional in the UK to manage your taxes. You may also file your rental income taxes to HMRC through self-assessment (using form NRL1).
You may be eligible for the standard personal allowance if it is included in the double-taxation agreement between the UK and the country you live in. This is the amount of income you don’t have to pay tax on every year. For example, Malaysians qualify for this allowance but Singaporeans do not.
You get a standard personal allowance of £12,500 (as per 2019/20), unless your income is £100,000 or above. The allowance decreases incrementally (see table below) if your income is above £100,000.
Your personal allowance can vary if you apply for Marriage Allowance or Blind Person’s Allowance.
You pay 20% tax on the first £50,000 of your income, after deducting any personal allowance.
For example, if you have the standard personal allowance of £12,500, you pay 20% tax on the next £37,500 of your income. If you do not have any personal allowance, you are taxed at 20% on the first £50,000 of your income.
For the the portion from £50,001 to £150,000, you pay 40%, and for the portion above £150,000, you pay 45%.
8: Property Resale/Exit
Should you choose to sell off your property, we can recommend a property agent and solicitor to assist you.
The agent’s commission rates, your advertising budget, and exclusivity will be decided by you and the agent. The agent will provide an appraisal of the property indicating how much they expect to sell the property for, and tell you how they plan to market your property. Agents normally charge between 2% and 3% of the sale price of residential property, whilst the resale of commercial student property can cost up to 5% of the sale price due to the smaller price quantum of the property. This rate can be negotiated.
The solicitor’s fees will start from approximately £2,000, depending on the value of your property.
Take note that, unlike stocks, property is not a liquid asset, and you should always expect that it will take some time for the property to be sold.
The sale of UK property is subject to Capital Gains Tax (CGT).
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is paid on any gains you make when you dispose of your property.
Your taxable gain is the difference in price between the purchase and sale of your house, after taking away any allowable expenses and your personal allowance (if selling as an individual).
All non-UK residents get an annual personal allowance of £12,000 for CGT (as per 2019/20).
Allowable expenses include the stamp duty paid upon the purchase of the property, agent fees and legal fees incurred during the purchase or sale, and payments for valuations made on the property.
For residential property, CGT is taxed at 18% on your gain if your total taxable income is £50,000 and below, or 28% if more:
Jason sells his apartment for £275,000. He had previously bought it for £200,000, giving him a total cash gain of £75,000.
Jason must report the sale to HMRC, complete a full CGT computation and pay any CGT within 30 days of transfer.
Jason’s expenses come up to £30,400, and after deducting his personal allowance, has a total taxable gain of £32,600.
Since his total taxable income is less than £50,000, he will be taxed on his gain at the CGT rate of 18%. This will come up to a tax of £5,868, or 2.13% of the apartment’s sale price.
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If you are interested to explore investing in UK property for high returns, or if you need us to refer you to a good tax firm in the UK, don’t hesitate to give us a call at (65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at email@example.com!
Disclaimer: This guide is an outline of CSI Prop’s purchase process, which may differ from other consultancies. CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review. You should also seek advice based on your particular circumstances from independent advisors and planners.
By Ian Choong Edited by Vivienne Pal
- Adams & Moore Ltd