Frequently Asked Questions
In recent years, London has been considered a ‘safe haven’ for property investment. As with any investment type, it will always have some fluctuations, but London will always remain a world-class city with huge investment appeal. According to Savills’ five-year forecast, London property values are set to rise by 10.4%, with the greatest property growth expected to be seen around Crossrail stations. London benefits from a global demand for homes, but there remains a shortage of supply due to space constraints, increased population, planning delays and not enough developers able to fund and supply homes. Over the past decade, London’s population has also increased by around 800,000, while just 200,000 new homes have been built – and London’s population is expected to increase by more than 1m over the next decade. The consequence of this supply and demand imbalance means high property price growth.
The United Kingdom is home to one of the largest real estate markets in Europe, and has consistently offered investor strong and stable returns over the years. There are several reasons why we believe that now is a good time to invest in the UK, especially for overseas investors:
- The UK suffers from a serious housing shortage. According to the Office of National Statistics, there is expected to be a shortfall of over 300,000 homes each year for the next decade, creating an imbalance in supply vs demand.
- The UK population is growing. The country, like many others in Europe, has entered ‘generation rent’, with more people choosing to rent longer (20% of population), due to lifestyle choices and economic (affordability) reasons.
- The impact of Brexit, and more recently COVID-19, has had a downward pressure in house prices, which is currently at the lower part of the cycle. These factors have created a good window to acquire and invest in competitively priced assets that offer long term, stable and recurring rental yields
- We are currently in a period of near zero interest rates. In March 2020, the Bank of England cut the base rate to 0.1%, the lowest in the country’s history. Together with the relatively weaker pound, this presents good opportunities for overseas investors.
- Despite Brexit, many cities outside of London, especially in the Northern Belt (Manchester, Liverpool, Birmingham), have seen steady capital growth, boosted by major investment & regeneration initiatives. The UK Government is committed to greater investments in the Northern Belt region over the longer-term.
- For many properties in the UK secondary market, there are good opportunities for value-added strategies (e.g. simple refurbishment, re-design layout, add an extension). This is not something which can be done with new-built, off-site properties, and offers an opportunity for greater returns.
There are two main ways of making an investment return through property:
- Stable Income Generation: Investors can earn a stable income through the rental of your property portfolio. The key is to set-up a portfolio to maximise rental yield, which can be achieved through the right investment choices.
- Capital Appreciation: Investors can gain from the growth in property price over the long-term. Through value-added strategies, there is also potential for investors to add value and sell your property for a profit, if the property increases in value
There are multiple exit options or contingencies based on the deal in focus. We will discuss in detail the contingency plan for your property investment before purchase, and what are your options if your intended strategy does not materialise.
We note that every investor has a different investment requirement, and thus the acquisition duration is very much dependent on the nature and complexity of your investment criteria and goals. However, we aim to investment options within 8 weeks.
UK tax law affecting overseas owners of UK residential property has undergone rapid and significant change in recent years. We will support new investors in seeking expert advice on their exposure to UK taxes. When considering the relevant taxes that apply to a non-UK resident investor who is purchasing UK residential property, the following taxes will be of relevance:
- Stamp Duty Land Tax (SDLT) is payable on the purchase price of the property. The amount of SDLT depends on the value of the property being purchased. Tax relief can be available where more than one property is purchased in a single transaction. There is also a relief for first-time buyers purchasing their first property for less than £500,000 and which will be used as their main residence.
- Income tax is payable on all net rental profit arising in the UK. It is possible to offset a variety of allowable expenses including financing costs (subject to a restriction from April 2017 for higher and additional-rate taxpayers), maintenance and repairs, and certain professional fees against the gross income. Non-UK companies will be brought within the scope of UK corporation tax, rather than income tax, from 6 April 2020.
- Where a UK residential property is purchased for more than £500,000 by a corporate entity for an individual’s own use, it will fall within the Annual Tax on Enveloped Dwellings (ATED) Those properties are liable for higher flat rate of SDLT and annual charges (see overleaf). The tax rate for disposals on or after 6 April 2019 is due to be aligned with the corporation tax rate of 19%.
- Capital Gains Tax is payable by all investors on disposals of UK residential property. If not caught by the ATED provisions (see above), Capital Gains Tax is paid on the excess value received over and above its cost or the market value as at 6 April 2015.
- From April 2017, Inheritance Tax applies to all directly and indirectly held interests in UK residential property, including certain loans made to acquire UK residential property. This also applies to structures involving offshore companies and trusts and those trusts are now subject to the UK trust reporting and taxation regime.
Our goal is to make the investment journey as simple and seamless as possible.
First, get in touch with us to discuss your investment goals and objectives. We will help establish a property investment plan for you.
Second, based on your investment plan, we will support you to get set-up for investment. This could include working with an accountant to set up an SPV (often a preferred mode for investment by investors), having a discussion with our tax specialist on the different tax issues as well as speaking with a mortgage specialist on your financing options. This is important so that you are in a position to move quickly should the right deal come about. We always emphasise to our clients that speed is critical in property investment.
We will concurrently source properties based on your investment criteria. We will present several options for your consideration.
Once we get the green light from you, we will proceed with the acquisition process, and serve on your behalf to ensure a smooth exchange and completion.
Third, we will work to get the property ready for rental or subsequent sale. This would often involve some light refurbishment or renovation works. For land development projects, we will appoint a project manager to oversee the entire project, keeping you updated at key milestones.
Yes, foreign investors can invest and own UK properties, and the UK has in fact long been an attractive market for foreign investment into the real estate sector. At FPI, we want to make this process easy. We have extensive experience in the property sector and in working with foreign investors, and will help you in each step of the journey to find the right investment that meets your goals and needs.
No, you do not need to visit the UK as technology has enabled all parts of the transaction to be done via email, voice/video call or post. We will provide you will images and videos of the properties, as well as a full diligence report, to help you with the purchase decisions. Our agents and partner offices are available anytime to speak on any deal or investment project.
There are many below-market value (BMV) properties that are available in the market. However, this often requires having a strong network of agents who can present new deals before they are listed on the market. The properties we offer at FPI are usually bought in auction or offered to us through our network of agents. Our agent contacts understand that our clients are looking for below market value and value-enhancing opportunities that can be built up and resold for significant profit. We undertake due diligence on the investment properties we offer to investors, therefore the properties that could be problematic are not presented to clients.
We recommend opening a UK bank account, especially if you are looking for long-term investments as payments will be paid in British pounds and exchange transactions between the UK and other countries are chargeable.
The type of bank account you open will depend on several factors, including your existing bank account/s, your country of residence, your credit history and whether you wish to visit the UK to open an account in person, as some banks require your presence as well as your ID.
We can help you with this. We also offer tech solutions that help investors easily set-up and manage a company and financial account for you, which include setting up a bank account.
FPI works with a variety of different lettings management partners, who can fully manage your investment properties. As part of our services, we will arrange this for you.
You do not need a UK company to invest in UK property, and can do so with your personal name and accounts. Most investors with just one property use a personal account. However, for investors looking to build an investment portfolio, it might be worth considering opening a UK limited company as they are more tax efficient.
We will discuss this with you when designing on your investment plan, and help you in setting up one if you would like to do so. We offer tech solutions that help investors easily set-up and manage a company and financial account for you, which include setting up a bank account.
Our partner offices globally can also facilitate introductions with local tax advisors to help you better understand the tax landscape and how to structure your investments efficiently.
For investments which are rented out, the lettings management team will transfer the rental income into your chosen bank account.
Disclaimer: While FPI endeavours to help you each step of the way in building your property portfolio, we are not tax or financial advisors. It is strongly recommended you speak with the appropriate professional advisers on all matters of your own personal and business tax and finance in connection with transactions. The information FPI supplies is intended for educational purposes only, to provide investors with an overview of information regarding investing in UK residential and commercial property. This information is not to be treated as advice; it is to be used as a reference point to further conduct your own research.