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Real Estate Investment in Britain

london_night_lights-wallpaper-800x600Real estate marketing experts in the United Kingdom have confirmed that the British real estate property is always the first destination for the Kuwaiti citizen and investor wishing to purchase real estate abroad, to be considered as a summer residence to spend the holidays, and also as investment for the future, particularly with the stable growth of the real estate prices in the different areas of Britain, ranging between 3 to 7 percent annually. This is in addition to the purchase demand throughout the year, whether on part of British citizens or Arabs in general, particularly citizens of the Gulf Cooperation Council. The demand to purchase in the market continues, in light of the worst cases and crises which the world is undergoing.

 A British real estate expert, sales and marketing manager of Taylor Wimpey Company, considered as one of the biggest real estate developing companies in Britain, Steve Rollet, said there is a constant growth in the ownership of Kuwaitis of British real estate properties. We find that their average purchase activity amounts to 100 transactions yearly. There is a long history of Kuwaitis’ acquisition of British properties in general and a big number of success stories. He asserted that the growth rate of British real estate rates is considered stable, ranging between 3 and 7 percent annually.

Rollete addressed the Euro crisis, political and economic problems which the European countries are undergoing. He hinted that these problems contributed in the backing of bank interest rates on real estate finance, which attracted several sectors to investment and purchase of British properties.

 The British government has also launched a new initiative in its new budget, under the title of “Help to Buy”, whereby the government contributes in purchasing properties for individuals by providing a bank interest free finance percentage, as well as reduce the down payment to 5%. This activated the market remarkably. This is in addition to the offers presented by British banks specialized in funding real estate, to attract those wishing to purchase properties. All these initiatives contributed in introducing new segments into the market.

 Further, the areas which witness purchase demand on part of Kuwaitis, represented in Cardiff City, contains average price houses, where the price per house is within the range of 250 thousand pounds sterling, i.e. the equivalent to 110 -120 thousand dinar. The focus on part of Kuwaitis was to purchase in this area for several years. He pointed that in each period, a new British area id discovered where the attention of investors wishing to purchase real estate properties is directed.

 400 houses for Kuwaitis

Further, there is a clear desire on part of some persons to acquire properties in Coventry and Leeds areas, two and half hours away by train from London. Their unit rates are very suitable, as we find that the price per 70 meters apartment starts from 75 thousand Kuwaiti Dinar.

 Further, Milton Kens, which consists of around 400 houses for Kuwaiti families, 30 minutes away from London downtown, where the size of demand for purchase is remarkably high recently. Kuwaitis started to be familiar with this area 20 years ago, and it contains a number of their successful investments. The average price growth rate in this area increases by 5% annually, considered as the highest return in Britain. This city comprises a number of headquarters of major international companies, where the rates range between 70 to 200 thousand Kuwaiti Dinar.

 The company offers in this city two locations for investment to Kuwaiti citizens, in cooperation with the major real estate development companies in Britain, including a location 7 minutes away and the other 4 minutes away only from the train station. Each of them comprises houses of areas ranging from 93 meters, consisting of two rooms, to approximately 185 meters, which contain 5 rooms. They include some which consist of two and three floors. The rates range between 97 thousand to 179 thousand Kuwaiti Dinar, considered as acceptable prices to many Kuwaiti segments wishing to purchase real estate.

He stressed that the company focused on specific projects as being the most suitable to the Kuwaiti investor sector, and also in view of their strong rental activity. He pointed out that the company has selected Melton Kens city to invest, as it is suitable with the Kuwaiti taste, particularly with its available services, the cleanliness of the city and its suitable prices.

On his part, the partner in Bond International Real Estate Company, Abdulla Abdul-Rahman Al Haroun, said the acquisition of houses in the offered areas is freehold for life, with succession for the independent houses. As for apartments, the matter is different according to the contracts. The ownership of some of which amounts to 150 years, and others amount to 900 years. Meanwhile, the freehold of houses include the gardens surrounding the house.

london_traffic_at_night-wallpaper-800x600Consulting lawyers and banks is necessary

Major real estate companies recommend dealing with Britons specialized in tax matters or through lawyers who hold experience and know-now in such taxes, in order not to fall in errors which may expose them to liability. He pointed out that many local banks have special office offices in Britain specialized in taxes, where the citizen whishing to purchase a British real estate property may deal with them to be familiar with the types of taxes required for each property. Undertaking this process is not costly and saves a lot for the potential buyer, particularly that the British tax laws are many, complicated and are amended periodically, and vary with the difference of the real estate property price and its acquisition method.

 The buyer should identify the average prices to avoid manipulation

On the other hand, the British real estate expert Joe Connolly, advised those wishing to purchase British properties for the necessity of identifying the market average prices, so that they are not deceived by prices exceeding the accustomed rates. He pointed that there are no remarkable cases of cheating or manipulation in the British real estate market,  particularly in connection with the businesses of major real estate companies which fear their reputation. However, the person who is not aware of the British real estate market falls indispensable errors.  Therefore, we advise them to deal with specialized offices, whereby a detailed study on the market is carried before purchase.

Some common questions about real estate investment in the United Kingdom

  • Is it better to invest in UK property as an individual or as a foreign company?

The advantages of buying a property through a company include avoiding the inheritance tax binding on the heirs in case of death of the purchaser if he had bought the property as an individual. The purchase  as a foreign company has another advantage which is profit tax when you sell the property, where the foreign companies are exempt from paying profit tax when you sell the property.

Foreign companies also enjoy the 20% ceiling on the return tax of the net rent after deducting expenses, while an individual buyer may pay a higher tax rate which may amount to 50% if the property return exceeds one hundred and fifty thousand pounds sterling annually.

So, purchase by the company is the best means of purchase in terms of tax and more economical means. In case you want to invest in the UK but do not have a company ready to purchase through it, we can establish a foreign company for you outside the UK in one of the countries or islands that do not impose taxes on companies to complete the purchase through it. The type of these companies is known as offshore companies.

Offshore companies do not pay taxes in the countries in which they are established, but pay taxes in the United Kingdom at a segment less than that stated above.

We always advise to consult a local tax expert accountant before the procurement process to advise the best way to buy, which reduces taxes on the investor.

  • Does the foreign investor pay tax on the rent returns in Britain and at what value?

The buyer pays, whether an individual or a local company or a foreign company, a tax on the income from the lease or return of property, whether the foreigner is resident or non-resident in the United Kingdom and this tax is worth 20% of the net profit after deducting all expenses and the real estate administrative agent’s commission who will manage the property and other expenses.

In the case of acquisition by a company, the revenue tax shall not exceed  20% of net income, but in the case of acquisitions as an individual, the segment may increase according to the property income. So, it is not surprising to find many of the foreign investors are buying through companies rather than individuals in order to enjoy the 20%  ceiling.

  • Should the foreign investor seek the help of a lawyer when buying a property in Britain?

The property should be registered if purchase and this is done in the department of registration of real estate and land in the United Kingdom. This is to ensure the rights of the buyer, as it is a legal requirement for everyone who purchased property in Britain to register the property. This task is carried out by the buyer’s lawyer whom services must be used by everyone who purchases a property in Britain.

The lawyer also studies the purchase contract legally and reviews all documents of the procurement process. The lawyer’s fees vary depending on the nature of the property, the type of transaction, the value of the transaction and the number of working hours spent in the transaction.

A lawyer should be appointed immediately after making an investment decision to undertake his works and supervise the procurement process from the legal aspects from the beginning till completion of the purchase. Usually,  the purchase takes  4 to 6 weeks on average to complete all the procedures and documents may decrease or increase the duration, depending on the nature of the transaction.

  • Can a foreign investor obtain financing to buy a property in Britain?

Foreign individuals and foreign companies can obtain financing to buy a property in the UK and this depends on the creditworthiness of an individual or entity that intends to invest in Britain, and also depends on the real value of the property as determined by the financing bank.

In London, some British companies such as “Luxury”  may arrange financing from local banks, Islamic and offshore banks on your behalf and create tax-efficient saving structures for you and special-purpose accounting structures on your behalf.  Contact us for further details.

Please note that the laws of finance, purchase and taxation change regularly. So, turning to a counsel is important to review the legal changes before purchase.

  • Does the foreign investor pay the tax when buying a property in Britain and at what value?

The investor in a property in London pays the tax at the time of purchase. This tax is known as the Stamp Duty Land Tax

london_panorama-wallpaper-800x600The amount of this tax differs according to the type and value of the property.  The tax for the residential property is on segments. The segment depends on the value of the property, which is zero percent, i.e. no tax in case of buying a residential property worth less than £ 125,000. The tax is 1% of the purchase price of the property if its value exceeds £ 250,000.

It is increased to 3% of the property value of up to £ 500,000. Then, the segment is increased to 4% of the property value of up to million pounds and then increased the segment of 5% of the property value of 2 million pounds. Then, the tax increases to 7% in the case of buying a property worth more than $ 2 million pounds, and this whether the investor buys his private accommodation as a second home in the UK or buying an investment property

The above-mentioned segments are for the single unit property, whether the property is a single apartment or house, i.e. for the use of one family. But for buildings, consisting of a number of apartments or condominiums they get a reduction in purchase tax. The buyer of the building only pays about 1% of the purchase price even if the value of the building exceeds 2 million pounds.  So it is not surprising to find trading in buildings popular in Britain among investors as they save taxes

As for the commercial real estate, there is also a tax paid by investors when buying and are also segments, but for a maximum of 4% of the purchase price.  There should be a good inquiry in the case of investment in commercial real estate in Britain, because most of the commercial real estate are subject to other tax in addition to the standard purchase tax paid by the investor when buying also known as value-added tax, or VAT, amounting to 20% of the purchase price.  So, a  survey is required before engaging in negotiations on the commercial property to ensure the availability of capital required in full before the start of negotiation.

Details of fees and taxes

Fees and taxes imposed on the buyers of the British property, represented in the following:

First: real estate registration tax: this tax is paid for houses that exceed the price of 125 thousand pounds, which is zero for a lesser price.  The first category includes houses that start with the price of 125 thousand to 250 thousand pounds, calculated at 1% of the value of the house. It is increased to 3% of the property value of up to £ 500,000. Then, the segment is increased to 4% of the property value starting from 500 thousand pounds. This tax is paid for one time to the British government, and is known as the stamp duty land tax.

Second: Municipality tax: It applies on all real estate and paid monthly. In case of rental of the house, this tax shall be liability the tenant, which is paid over 10 months period only, and there are two months free of charge each year. as  such fees are not payable in the months of January and February each year.

Third: Income tax: In the case of rental property, this tax is calculated by the average of 20 per cent of income. Real estate finance expenses shall be deducted from this tax, if the buyer obtained funding from a bank. Further, any expenses related to the property, whether for repairs, maintenance works, etc. shall be deducted from the tax also.

Fourth: inheritance tax:  payable upon transfer the property to the heirs after the death of the owner, and estimated to be worth 40% of the value of the property after deducting financing, so if the value of the property is above 325000 pounds, as each property worth less than that would be exempted. If the value of the property exceeds this value and the property is owned by more than one person (maximum 4 persons),  and the value of each contribution  does not exceed the amount of 325000 pounds, each participant shall be relieved of the tax, and if more, he shall be subject to the tax. Tax is a personal matter due for the value of the individual’s assets in Britain.

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