As an investor from outside the UK, your main consideration when buying property in the UK is the exchange rate and where it is relative to your own local currency. Over the last 18 months since the Brexit vote, sterling has dropped in value, and it has been this move that has led to a rush on UK property, with foreign investors looking to cash-in on the drop in the UK currency. Towards the end of last year sterling had dropped on average around 15% against most foreign currencies, with the likes of Russia and South Africa as much as 21% (and ironically the likes of Europe around 16%). Many buyers were also holding off in anticipation that the value of sterling may drift lower still, but so far this has not materialised and so for the first part of 2018, we are once again witnessing a resurgence in foreign investors.
Why Invest in The UK?
Why do foreign investors continue to buy UK property when elsewhere in the world property prices have either plummeted or certainly suffered some major setbacks? Even after the financial crisis of 2007, property took a dip, but it held fast without bottoming out, and only took a few years to reach values in excess of the pre-recession peak. This ability to remain resilient is what keeps people coming back for more, and acts as a major draw to foreign investors.
Another component that is attracting foreign interest is the fact that the UK property market adapts to changes very well, a good example being the PBSA sector that has only just started to be developed in the UK, but has already being openly adopted by investors and in the last few years alone has seen some £11bn invested in this sector. Add to this the fact that rental rates continue to rise and are forecast to continue, and also a diversification away from the London centric market to other parts of the UK, notably the North West, the UK remains a great location to invest in the property sector.
As a non resident, your main concerns now should be getting your foreign currency ready, from whatever source that may be. Here at Flambard Williams, we have partnered with a Foreign Exchange provider who as a partner of ours, can offer beneficial rates on your currency exchange, in addition to solutions to exchange rate issues that no other bank will offer at rates that will not be matched by your usual high street bank. For further information on this, click here.
How Can I Manage a Property That is Far Away?
Once you have completed your transaction, your next worry will no doubt be how you will manage a property that is so far away. This is no longer an issue, companies these days in the UK are geared up for foreign investors, offering many services that cover all your needs, often employing people that speak your local language and allowing you to sit back and relax, in the full knowledge that your property is being managed and cared for by a company that treats it like it were their own, at a fee that represents on average around 8-10% of the rental income. With this kind of management available it makes little sense to manage it yourself, even if you were living nearby.
How Will Tax Impact my Income?
The final question you will no doubt be asking, and a major consideration is how Tax will impact your income as a non-resident. The basic rule of thumb here is, UK income tax is applicable on income derived from renting property regardless of nationality or residence status of the landlord. That said there are many variations on this and there isn’t just income to contend with, you have Capital gains tax, and inheritance tax to name just a few. At this point you can then begin to discuss the best way to hold a property in the UK, should it be in personal ownership, set up in a company or in a trust or nominee.
Well all of these have there merits, but there is no simple answer to the question “how should a non-resident hold UK residential property?” Each case needs to be addressed separately, with consideration given to personal circumstances, the taxes that might apply, the likely timing of any liability and the reliefs available. A purchase for long-term occupation by family members may call for very different structuring to a straight investment. At this point perhaps a discussion with an accountant would be advisable, as views can often change on a case by case basis.
To conclude, property in the UK remains a sound investment and one that continues to attract foreign investors in their droves, despite the latest tax changes to be implemented on these shores. As usual you should always do your research and work out the best vehicle by which to invest in the UK, paying attention to the currency, as your income is in local currency and any foreign debt would be subject to the value of sterling relative to that. Ultimately over the last few decades, despite various problems being thrown at the market, prices have continued to rise, and those who invested wisely a few years ago are now reaping the benefits.
This ability to make long-term gains for investors without high risks seen elsewhere in the world is one of the main reasons people keep investing in the UK from overseas, and this situation looks set to continue, as the UK embarks on a new and exciting eta post-Brexit.