As a mature but relatively low risk property market, the UK has been attractive to many overseas buyers. In most cases, overseas property buyers purchase properties for two purposes: one is to provide accommodation for their children while they study and/or subsequently work in the UK, and the other one is as an investment.

 

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Compared to many other parts of the world, rental income in the UK is relatively high. The value of the properties has been increasing since the financial crisis of 2008. However, due to different legal and tax landscapes governing the property market, overseas property buyers can face many challenges when buying properties in the UK. This article intends to address some common issues/questions overseas property buyers may have.

 

Funding

 

Unlike domestic buyers, it is more difficult for overseas buyers to obtain mortgages from lenders in the UK, as they are reluctant to accept evidence of overseas income. Although occasionally, overseas buyers may tend to use bridging loans for help, they are of short terms with very high interest rates and therefore very risky.

 

The majority of overseas buyers may have to rely on their own savings or gifts from family members. There must be clear evidence to prove that the cash comes from legitimate sources, otherwise, your conveyancers will not be able to accept it.

 

Transferring cash to the UK can be a challenge in some cases. Although UK laws do not limit how much a person can send funds there, your own country may impose its own transfer limits. As a result, you should look to plan earlier so that it does not delay your transaction.

 

Immigration status and overseas resident surcharge

 

There is no law absolutely banning foreigners from purchasing properties in the UK. In theory, as soon as you have enough funds, you can buy as many properties as you want. Equally, purchasing properties hardly adds any help to a person’s immigration plan to the UK. Further, from 1st April 2021, as an overseas buyer, if you choose to buy properties in England and Northern Ireland, you will have to pay 2% overseas surcharge on top of the standard stamp duty you have to pay.

 

Higher rate stamp duty for additional properties

 

An additional higher rate of 3% on top of the standard stamp duty will have to be paid if  a buyer has already had another property anywhere in the world. Although the law applies to domestic buyers as well, overseas buyers are more likely to be hit, as it is very likely that they would already have had another property in their own country.

 

Off plan purchases and high level of deposit

 

Many developers like to promote off plan purchases to overseas buyers. They normally demand very high deposits, 40% or even more. Such transactions are very risky. From time to time, developers fail to complete the construction of the buildings, due to lack of funds or experience. In the worst scenarios, buyers can fall victims to scams where the developers simply vanish after collecting deposit from buyers. It is therefore very important for overseas buyers to conduct independent check on developers’ trading history, financial status, experience and expertise in delivering such development project. It is also suggested that no more than 10% deposit should be paid before completion.

 

In addition to the above issues, overseas buyers should also be aware that they do not enjoy any income allowance, unlike UK residents. It means that they need to pay at least 20% income tax on any rental income they will receive if they plan to rent their properties out. If they do not plan to rent their properties out, they may have to pay higher council tax in some parts of the UK, as those councils try to discourage people from purchasing additional properties as investment in their areas.

 

Our thoughts

 

In any event, property purchase is an important investment. It is always prudent to make sure that you know the relevant law and make detailed plan before committing yourself to it. Should you need any help, Lisa’s Law will always be available to assist with our experience and expertise.

 

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