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Buying UK Residential Property as an Overseas Investor

August 20, 2018


If you are an overseas buyer, you may be considering buying UK residential property as an overseas investor whilst the value of the pound sterling is down. Before you decide to invest, read our guide on things non-resident buyers need to know about investing in UK property.



Freehold VS Leasehold


Firstly, you can own property in two different ways. You may purchase a property and own the freehold, or you may own it as a leasehold. Below explains the difference between a freehold and a leasehold property.


What is a freehold property? 


In England and Wales, a freehold means outright ownership of the land and the dwelling that sits on it. Most houses in England and Wales are owned on a freehold basis.



What is a leasehold property?


A leasehold means you only own the property for a fixed time. The duration is typically specified in a legal agreement with the landlord (the freeholder). Most flats are owned on a leasehold basis, as are houses that are bought through shared ownership schemes. 



Tax on income made through rental property 


One thing that may affect the profitability of a property investment is the income tax you may need to pay on it, and any additional costs such as stamp duty or even day-to-day maintenance. 


Individuals have a tax-free personal allowance of up to £11,500 in the tax year from 6th April 17 - 5th April 18. In the tax year 2018 - 19 this will increase to £11,850.


For example, if you purchased two properties valued at £75,000 with 10% net income:


£15,000 income


£11,850 allowance 


£3,150 taxable at 20%


= £630 tax 



Tax Implications for Overseas Investors 


You will get a tax-free personal allowance if you are a citizen of a European Economic Area country, or you have worked for the British Government at any time during that tax year.


You may also get a tax-free personal allowance if you reside in a country that is included in the double-taxation agreement.



Bank lending and mortgage availability 


Different types of property may qualify for different types of mortgages (or not at all). Also, mortgage options for overseas investors may be limited. Read below for more details on what mortgages may, or may not, be available. 


Typically, commercial properties such as care homes and student property do not qualify for mortgages, because residential lenders do not provide loans for commercial property, and commercial lenders would generally only consider larger purchasers of £500,000 or more. 


Mortgages are not available on residential properties under £150,000 to overseas landlords. There is no finance on commercial properties such as student properties and care home investments. 



Choosing an area with sustainable demand for your type of property 



 There is little point investing in student property in a remote village on the south coast and investing in retirement homes in a busy metropolis may not be the best idea. When choosing an investment type, it is wise to study the demographics of the area and weigh up the existing supply vs demand.


It is advisable to consult companies such as ProVest Holdings Limited, who have experience sourcing UK property investments and can discuss investment options with you to help you find the best investment in an area with good fundamentals.



The purchase process for property investments outlined - what to expect 


Work out your budget


Work out how much you can afford and account for stamp duty, legal and conveyancing fees. Remember that if you require a mortgage, you will generally need a deposit of at least 10% of the property's value.


Research areas 


You will need to research areas to ensure that property prices there are affordable. You will also want to work out whether on top of fees and other repayments, the rental income will be substantial enough for you to make a profit.


It may be impractical for overseas buyers to conduct significant research, especially if they are not familiar with various areas in the UK. Therefore, overseas buyers may want to seek advice from property  investment consultants at ProVest Holdings. 



Choose your preferred unit 


This is important if you are going to occupy the property yourself, as you may have a preference in terms of lighting or the direction the unit faces. For overseas buyers who are not planning to live there, it is not important to focus too much on one apartment.



Pay a reservation fee of between £2500 - £5000


Once you have decided on a unit, you will be required to complete a reservation form and send it off along with proof of ID and address. You will then need to transfer a reservation deposit which will typically be between £2500 - £5000.



Begin the conveyancing process 


Once you have made an offer and it has been accepted, you will need to instruct a solicitor who will begin the process of transferring the property into your name.


If you have taken out a mortgage on the property, the lender will typically want a valuation survey completed to ensure that it is worth what they are willing to loan you. If the valuation discovers any problems, you may want to reduce your offer to account for the repair work that has to be undertaken.



Exchange contracts (minus the reservation fee)


Your solicitor should let you know once they have completed all the relevant searches and investigations. Once your mortgage lender has provided you with a firm offer, you are ready to exchange contracts. At this point, you are committed to buying the property.



Stage payment of 25%




Completion involves handling over the funds to buy the property. Usually this is managed by the solicitor on your behalf. You will generally be charged a small telegraphic fee to transfer the funds by your mortgage lender and will have around 30 days to pay ant\y Stamp Duty owed. 


Receive your income


Rental income will generally be paid quarterly , but overseas investors will be required to complete a Nrl1 tax form. property investment opportunities offered by ProVest Holdings are hands-off, meaning that investors will not have to worry about carrying out maintenance work or advertising for potential tenants. 


We understand that investing in the UK may be especially daunting for those who live overseas. Everyone who invests a significant amount of money in property will be thorough in their research, but when one is investing in a place that is perhaps thousands of miles away. and they are unfamiliar with the process and terminology; it can be especially stressful. If you are considering UK property investments, contact us today for UK property investment advice and we can share our expert knowledge with you on buying property in the UK as a non-resident.










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