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Category: <span>Need-to-Know</span>
As stock investors worry about the extreme volatility of the market, property investors wonder how much of an impact the current Covid-19 pandemic can have on house prices. Read more and learn if this is the time to buy UK property, and how to go about it with the best terms and returns.
A rush in overseas buyers is expected ahead of the stamp duty surcharge enforcement in April 2021.
The UK government has announced an additional 2% surcharge on all non-resident buyers of property in England and Northern Ireland, prompting a potential scramble from foreign investors before its enforcement on 1 April 2021.
Property experts expect a rush from overseas property investors looking to save hundreds of thousands before the new foreigner stamp duty surcharge is introduced in April 2021 . Image by PA.
Time is ticking — and it’s ticking FAST. From April 2021, the price of property will increase significantly for foreign investors, up to hundreds of thousands*!
If you’ve been thinking about investing in UK property, don’t wait too long. Foreign investors have 1 year before prices increase.
You’ve decided on an Australia property investment but have no idea what the purchase process entails. This article will guide you through some of the stages in the 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 prefer the hassle of flying to and from Australia and dealing with the developer/seller directly! It is important that your agent works closely with the developers, facilitating communication from the developer to you, and vice versa.
1. Property Reservation
At CSI Prop, we recommend investments based on your goals and budget. Once you have decided on the property for investment, you will need to sign Reservation Forms and a Solicitor Appointment Letter.
There are several payments required at this stage:
- Reservation Deposit*: MYR5000 (forms part of the purchase price and is non-refundable)
- Legal Fees*: approx A$2000
*Payment can vary depending on project/developer/solicitor
CSI Prop works closely with a panel of solicitors and mortgage brokers who are recognised in Australia. We’re happy to recommend our panel, but you also may use solicitors or mortgage brokers of your own choosing.
2. Exchange of Contracts & 1st Payment
Subsequently, you will sign the Contract of Sale for the property, and make your first payment to the developer. For apartments, this is 10% of the property price. For a land and house package, the first payment will be 10% of the land price and 5% of the building price.
You will also need to make an application with the Foreign Investment Review Board (FIRB). This process is required of non-resident foreigners before purchasing any residential property in Australia. The cost for this (as of 2018-19) is A$5,600 for dwellings valued at A$1 million or less.
3. Financing
Application for financing can be done 3 to 6 months before settlement, and the banks will assess your financing position and eligibility.
Documents 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 bank 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.
4. Final Settlement & Stamp Duties
Once your property achieves 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.
At this point, you will also need to pay stamp duty, also known as land transfer duty, to the State Government. Stamp duties differ in amount across the different states of Australia, and the following rates covered here are applicable to residential property only. Different rates may apply to commercial property.
Victoria (Melbourne)
The following stamp duty rates apply in the state of Victoria for property that is not the buyer’s principal place of residence:
Foreign property buyers pay an additional 8% duty on top of these normal rates (stamp duty surcharge), unless exemptions apply. There are exemptions for Australian-based corporations or trusts which add to the supply of housing stock in Victoria.
In Victoria, Australian citizens, permanent residents or New Zealand citizens with a special category visa have the following exemptions:
- First-time buyers pay no stamp duty on a property that costs below A$600,000, or a reduced rate if the property has a value of between A$600,000 and A$750,000.
- Pensioners don’t have to pay stamp duty on a property that costs below A$330,000. They also get a partial concession on properties valued up to a maximum of A$750,000.
Western Australia (Perth)
These are the stamp duty rates for property in Western Australia:
Foreign property buyers pay an additional stamp duty surcharge of 7% in Western Australia.
Australian Capital Territory (Canberra)
These are the stamp duty rates in Australian Capital Territory:
Foreign property buyers pay an additional stamp duty surcharge of 0.75% in the ACT.
New South Wales (Sydney)
These are the stamp duty rates for property in New South Wales:
Foreign property buyers pay an additional stamp duty surcharge of 8% in New South Wales.
Queensland (Brisbane)
These are the stamp duty rates for property in Queensland:
Foreign property buyers pay an additional stamp duty surcharge of 7% in Queensland.
5. 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.
6. Rental Income
When you receive your rental income, you will need to pay income tax to the Australian Government. Different income tax rates apply for Australian residents and non-residents.
You may also be taxed again on your Australia income by the country where you’re resident in.
Malaysians do not need to pay taxes on rental income from Australia, to the Malaysian Government due to the double taxation agreement that both countries have. If you live in another country, you will need to find out if there is such an agreement between your country and Australia.
Income Tax for Non-residents in Australia
Taxes need to be filed yearly. You can file your taxes yourself, or hire a tax agency to do it for you. CSI Prop can recommend a qualified professional in Australia to manage your taxes.
Note that if you own a residential property in Victoria that remains unoccupied, you may be liable for Vacant Residential Property Tax (VRPT). The tax was introduced as a measure to increase available rental properties, and is at a rate of 1% of the Capital Improved Value (CIV).
7. 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 fees vary according to state.
Legal fees generally range between A$700 and A$1300.
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.
Capital Gains Tax (CGT)
In Australia, capital gains are treated the same as income from other sources. Any net capital gain from the sale of a property is included as part of the seller’s income and taxed together with their other income. Capital losses can be offset against capital gains. Residents qualify for a 50% Capital Gains Tax discount, as long as they have held the asset for at least 12 months before disposal.
Click here for more guides on property investment, and please subscribe to our website notifications to get the latest updates! Leave us a comment below if you have any thoughts or questions on our article.
If you are interested to explore investing in Australian property for high returns, or if you need us to refer you to a good tax firm in Australia, don’t hesitate to give us a call at (65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.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
Sources:
https://www.sro.vic.gov.au/node/1485
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.
4: Financing
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:
Example:
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.
Click here for more guides on property investment, and please subscribe to our website notifications to get the latest updates! Leave us a comment below if you have any thoughts or questions on our article.
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 info@csiprop.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
Sources:
- Adams & Moore Ltd
Investors have the option of purchasing property as an individual or via an investment vehicle, such as through a company. Different taxes apply at different stages of owning a property — when you buy it, whilst you own it, and when you dispose of it.
In Part 1, we covered the taxes that are applicable at the purchase stage of the investment. Part 2 covered the next stage of investment, ie when you have already taken possession of the property. Here in Part 3, we talk about what entails when you dispose of your UK property.
Capital Gains Tax (CGT)
When you sell your home, you may need to pay Capital Gains Tax (CGT) on any gains you make when you dispose of your property.
CGT is currently only applicable to residential property. Commercial property such as student property and care homes will be subject to CGT from April 2019.
Your taxable gain is the difference in price between the purchase and sale of your property, after taking away any allowable expenses and your personal allowance (if selling as an individual).
SELLING AS AN INDIVIDUAL
All non-UK residents get an annual personal allowance of £11,700 for CGT.
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.
CGT is taxed at 18% if your taxable gain is £46,350 or less, or 28% if more:
Example:
Jason sold 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, he has a total taxable gain of £32,900.
Jason’s taxable gain is less than £46,350, so his CGT rate is 18%, and this will come up to a tax of £5,922, or 2.15% of the apartment’s sale price.
SELLING THROUGH A COMPANY
INHERITANCE TAX
Leaving your property to your heirs
If you are leaving your house to your heirs, you may want to take note of the taxes involved in bequeathing it.
Inheritance Tax will need to be paid on any UK assets you pass on. Currently the tax is at 40% for any amount above £325,000 per individual (what is called the ‘nil-band’ allowance).
Example:
Andrew owns a house worth £350,000, which is his only UK asset. He leaves the house to his son.
The house’s value exceeds the allowance threshold by £25,000, and the Inheritance Tax on that amount would be £10,000.
The tax is paid by Andrew’s son who inherits the house.
You can put estate-planning in place to significantly reduce the tax your heirs will need to pay.
This could be something simple like bringing on a spouse or re-mortgaging your house.
Spouses can inherit their partner’s allowance, effectively doubling their tax-free allowance to £650,000.
Example:
Barry owns a house worth £500,000, which is his only UK asset. He leaves the house to his wife.
There is no IHT for passing on the house to a spouse, so Barry’s wife will not pay any tax. However, Barry’s wife also inherits Barry’s allowance.
When Barry’s wife dies, the son inherits the house. Barry and his wife’s joint allowance is £650,000, which is more than the value of the house, and the son will not need to pay any IHT.
An outstanding mortgage can also be tax-deductible against your estate, and will lower the amount of Inheritance Tax charged.
Here are some other ways of estate planning:
- Using a trust
- Using a UK company
- Taking out a life assurance policy not based in the UK
A good tax planner will advise you on your best options, ensuring that your heirs will get the maximum benefit out of what you leave to them.
Click here for more guides on property investment, and please subscribe to our website notifications to get the latest updates! Do leave us a comment below if you have any thoughts on our article.
If you are interested to explore UK Property’s potential 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 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
Disclaimer: This article serves as a guide to investors. Kindly note that CSI Prop is not a licensed tax advisor. Accordingly, you should seek advice based on your particular circumstances from independent advisors and planners.
By Ian Choong
Sources:
- Adams & Moore Ltd
- Featured image: YourNewHouse.co.uk
Investors have the option of purchasing property as an individual or via an investment vehicle, such as through a company. Different taxes apply at different stages of owning a property — when you buy it, whilst you own it, and when you sell it.
In Part 1, we covered the taxes that are applicable at the purchase stage of the investment. Here in Part 2 of the series, we cover the next stage of your investment, i.e. when you have already taken possession of the property.
Income Tax
If you rent out your home, you may need to pay income tax on any earnings/profit from rent, after deductions or allowable expenses. This may include
- Interest on loans
- Repairs and maintenance
- Ground rent
As a foreigner renting out your property in the UK, you are classed as a non-resident landlord by HM Revenue and Customs.
OWNING AS AN INDIVIDUAL
The standard personal allowance is the amount of income you don’t have to pay tax on every year. As a foreign property investor earning rental income in the UK, you qualify for the standard personal allowance if it is included in the double-taxation agreement between the UK and the country you live.
For example, Malaysians who invest in UK property are eligible for this yearly allowance. Singaporeans, however, are not.
You get a standard personal allowance of £11,850, 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.
If you have the standard personal allowance of £11,850, you pay 20% tax on the next £34,500 of your income.
If you do not have any personal allowance, you are taxed at 20% up to £46,350 of your income.
For the portion from £46,351 to £150,000, you pay 40%, and for the portion above £150,000, you pay 45%.
As a foreign investor, you can file your rental income taxes to HM Revenue & Customs by getting your rental in full and paying through self-assessment (fill in form NRL1).
OWNING THROUGH A COMPANY
If you own property through a company, you will be taxed differently.
We hope this has been helpful! Stay tuned for Part 3 of Investment Vehicles: Selling a UK Property.
What are your thoughts about buying UK Property through an investment vehicle? Drop us a comment below. If you are interested to explore UK Property’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
Disclaimer: This article serves as a guide to investors. Kindly note that CSI Prop is not a licensed tax advisor. Accordingly, you should seek advice based on your particular circumstances from independent advisors and planners.
By Ian Choong
Sources:
- Gov.uk
- Featured image from Property Moose
Have you ever wondered if you should invest in property through an investment vehicle, instead of as an individual?
In this three-part series on investment vehicles, we’ll go through the various types of taxes that are applicable when buying property in the UK individually and through a company, so that you can have a better idea of the differences between the two.
Different taxes apply at different stages of owning a property — when you buy it, whilst you own it, and when you sell it.
In Part 1 of 3, we go through the initial stage of owning a property in the UK, which is when you buy one.
The tax involved when you buy a property is called the Stamp Duty Land Tax (SDLT).
Stamp Duty Land Tax (SDLT)
When buying a property, you are required to pay stamp duty to HM Revenue & Customs within 30 days of completion.
Generally, your solicitor, agent or conveyancer will assist with filing and paying the tax on your behalf and adding that amount to their fees. Otherwise, you can file the return and pay the taxes yourself.
BUYING AS AN INDIVIDUAL
Residential Property
First-home buyers
If this is your first home purchase, and it costs less than £500,000, you can claim relief as a first-home buyer.
This means that you don’t pay any stamp duty up to £300,000 and only 5% on the portion from £300,001 to £500,000.
If you already own or previously owned a home outside the UK, you can’t claim relief.
If your first home purchase costs more than £500,000, you follow the rules for Single-House Owners.
Single-House Owners
Single-house owners are those who have previously owned a house before, but have sold it.
This also applies to property outside of the UK.
Single-house owners don’t pay any stamp duty up to £125,000.
You only begin paying stamp duty at various increments from the next £125,000 (the portion from £125,001 to £250,000) onwards.
Any portion above £1.5 million is charged at 12%.
Multiple-House Owners
If buying another house means you will own more than one property, higher rates apply, unless the house you are buying is less than £40,000, in which case you pay 0% stamp duty.
Stamp duty rates are higher by 3% across the bands for buyers who already own a home (in or out of the UK).
If you own just one house now, and are planning to buy a new one as a replacement, Multiple-House Owner stamp duty is applicable. However, you can get a refund if you sell the old one within 36 months of purchase.
Commercial/Non-Residential Property
Buyers of commercial property don’t pay any stamp duty for property price 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%.
BUYING THROUGH A COMPANY
The taxes are different if you are buying through a company:
Do stay tuned for Part 2 of Investment Vehicles: Owning a UK Property.
What are your thoughts about buying UK Property through an investment vehicle? Drop us a comment below. If you are interested to explore UK Property’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
Disclaimer: This article serves as a guide to investors. Kindly note that CSI Prop is not a licensed tax advisor. Accordingly, you should seek advice based on your particular circumstances from independent advisors and planners.
By Ian Choong
Sources:
- Gov.uk
- Featured image: lowimpact.org