Property buying in the UK is a fairly straightforward process. Having selected the property, you will need to make an offer. If accepted by the seller, it can be taken off the market to prevent other potential buyers from making higher offers. This offer is not legally binding at this stage, except in Scotland where the property process differs.
The next stage in the process will involve a valuation survey to ensure that the property is worth the asking price. A full structural survey or homebuyer’s report would provide a more detailed picture should you be concerned about potential problems with the property.
The next stage is to proceed with the legal transfer of the property. This requires a solicitor or licensed conveyor. There are no set fees here and it would be a good idea to establish whether or not VAT and/or disbursements are included in the quotation. Conveyancing proceeds through an exchange of notes between the buyer's and seller’s solicitors. A ‘draft contract’ is drawn up by the seller’s solicitor containing the price and information about the seller’s deeds of title, which will then be checked by the buyer's solicitor who will negotiate the terms.
Searches, enquiries ,and surveys undertaken on your behalf will include a Local Authority Search (to check that the property is not in the way of any project) and a search at the Land Registry (to check the security of the title). Other enquiries would involve a check on issues, such as, mineral rights, flooding, pollution, etc. This part of the conveyancing process will take a minimum of two weeks, but can take as long as two or three months.
If both parties are satisfied with the terms at this stage, then the final contracts are signed. This is legally binding for both parties and it is at this stage that a non-refundable 10% deposit will be required. The final stage of the process would involve the drafting of a transfer contract documenting the transfer of title. Between the signing of the contract and completion date, proper arrangements with the Land Registry office are made and the stamp duty and other fees connected with registering are paid.
Stamp duty in the UK is calculated as follows:
Up to £125,000 NIL
£125,001 - £250,000 1%
£250,001 - £500,000 3%
Over £500,000 4%
Tax is payable on rental income of up to 40% depending on individual circumstances. As a landlord, you will be taxed on the overall net profit from rental income every year. The profit is calculated by adding all your rental income together and deducting any allowable property related expenses. Income from properties owned outside the UK, described as overseas property income, is taxed as foreign income.
For landlords who do not live in the UK for most of the year but receive rental income from UK property, the taxation procedures are different. There are two possible routes for non-residents owning and renting out property located in the UK:
1) Choosing to pay income tax upfront (withholding tax).
Unless non-residents take specific steps (see below) they will be taxed on net rental income sourced from the UK at a flat rate of 22%, which must be withheld by the tenant or letting agent, if there is one. In cases where the landlord does not have a letting agent, and the weekly rent exceeds £100, the tenant must usually withhold taxes from payments made to a non-resident landlord. This system applies separately to the rental income of joint-owners.
Certain expenses may be deducted from gross rental income, including costs incurred for business purposes and not of a capital nature. However, only expenses incurred by the tenant or letting agents may be deducted. Letting agents and tenants are sent manuals by the Inland Revenue to guide them through the process of taxing the landlord. In the case of vague expenses, the tenant or agent must be 'reasonably satisfied’ that the expense is legitimate before deducting. No personal allowances are available to those who choose this route.
This process is a considerable burden upon the tenant, and many tenants may simply refuse to participate in which case a landlord may opt for the second route.
2) Receive untaxed income now and pay tax later.
A non-resident landlord may opt to receive their rent untaxed, and choose to file a tax return instead. They will need to complete a NRL1 (for individuals), NRL2 (for companies), or NRL3 (for trustees) form from the Centre for Non-Residents. It is worth noting that each spouse receives the benefit of allowances. This option may be rewarding for those non-residents eligible to claim UK allowances.
Capital Gains Tax (CGT) is calculated separately from income tax and is charged at rates of 10%, 20%, and 40%, depending upon your income bracket. Essentially, CGT is charged on the proceeds of a property sale, or the market value of a gift less its original cost, and after any selling and improvement expenses have been taken into account.
Capital Gains Tax is payable by 31 January following the end of the relevant tax year. If you are resident in the UK, you are liable for CGT on your worldwide assets and gains. Non-residents are normally not liable to pay CGT, but there are some important exceptions (e.g. gains in disposal of UK assets used to carry on a trade, profession or vocation in the UK).
Purchasers of commercial property can benefit from the added advantage of a potential 75% Capital Gains Tax exemption. This can be achieved after owning a commercial property for just two years (a potential 50% exemption applies if you sell between one and two years after purchasing the property).
Many of the costs incurred by investors in UK real estate will be liable to UK VAT at 17.5%, including legal, architects and survey fees, estate agents charges and other professional costs. While the letting of residential accommodation is, in almost all cases, not subject to VAT, the VAT paid on those costs is not generally recoverable.
VAT is charged on services relating to UK land regardless of the place in which the recipient resides for VAT purposes; the zero-rating available in respect of certain international services is not available where the services relate directly to UK land. Some associated services less directly connected with land (for example, accountancy fees) will usually be zero-rated.
Inheritance tax is payable in the UK and the value of estates above the threshold (currently £300,000 for tax year 2007 to 2008) is taxed at 40% unless it is left to a spouse. Recent legislation has doubled the value of assets that couples can leave behind without incurring inheritance tax. Married couples and civil partners now have a combined threshold of £600,000, rising to £700,000 by 2010. With a 40% rate on death and a 20% rate on lifetime transfers, Inheritance Tax is at first sight a substantial amount. Various tax reliefs and exemptions are available, however, which (if properly used) can greatly reduce its impact.
The main form of local property taxation in the UK, Council Tax is charged on domestic property and is collected by the local authorities. Generally, the higher price, the greater the tax will be. Each local authority keeps a 'Valuation List' of all the domestic property in its area. Property values are assessed annually and put into a valuation band with a corresponding charge.
The United Kingdom is a constitutional monarchy whereby the Queen is head of state and the Prime Minister is head of government. Executive power is exercised by the government and legislative power is vested in both the government and the two chambers of Parliament; the House of Commons and the House of Lords. A multi-party system with a strong democratic tradition, the Westminster System has been emulated around the world. Partial devolution of power has taken place in Scotland, Wales, and Northern Ireland and this issue remains at the forefront of local politics.
The highest valued of the major currency units in the world, the pound sterling continues to consistently outperform the Euro and the US dollar.
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