Investing in UK property as a foreigner  

What nationalities can invest in UK property

Short answer, almost everyone. I say almost as there are some very small exceptions, unfortunately for reasons caused by political tensions. So, this would be locations such as Russia or North Korea.  

 

Main Things to research and consider…

1. Your own countries current currency against the UK pound (£)
2. Your countries exact tax agreement with the UK as laid out in the Tax Treaty… https://www.gov.uk/government/collections/tax-treaties

 

After you know these 2 points about your own nationality to invest in the UK then everything else is mostly exactly the same no matter where you are from.

 

Investing as a foreign individual or through a company

At Fabrik we almost always point our foreign investors towards the route of setting up a limited company, rather than investing as an individual. The tax benefits are too great not to do so. Although it does change your entire taxing structure and you will likely need help with it through accountants and tax advisors, it is well worth it.

You can of course do either; the choice is up to you.

 

Foreign Investor Visas

As a foreigner you don’t need an investment Visa unless you want to invest over £2 million.

To get a Visa you need to…

• Aged 18 or over.
• Prove the money belongs to you or your partner and pass AML checks (anti-money laundering)
• Have a UK bank account

 

Finance options

As a foreigner you will have most options available but with some extra restrictions and fees…

 

Buy-to-let mortgages

Buy-to-let mortgages in the UK for a UK citizen are (at the time of writing) about 4% interest, however, as an investor you will probably have to add a percentage on top of this at about 5%. Not all banks and lenders will lend to non-UK citizens either, but there are plenty of specialists who will, making this no obstacle.

Mortgages in the UK will take many things into consideration such as age, income, credit score etc… but do look favorable if the property is for investment purposes.

Every mortgage lender is different and look at investments with different levels of favoritism, some like HMOs other like standard residential lets. Speak to a good broker who will be able to assists you with the best mortgage for your investment option.

Cash

If you are a cash investor, then you are clearly in a very strong situation. It is an easy way for the UK economy to bring cash into the country with basically no risk. This is part of the reason so many Billionaires can park their money in London real estate.

However, you will need to prove this money is your and pass the AML checks.

 

Bridge loans

Bridge loans are a short-term loan which usually must be paid back within 6-12 months. They are popular for active investors who buy refurb and refinance or sell properties for a quick turnaround. Like a mortgage you pay a deposit, which could be anywhere from 20% and you pay interest.

The interest paid will be far higher than a mortgage, for example could be 10%. Usually if you don’t pay these back in the agreed time interests and fees can go far higher.

Bridge loans can come with a lot of risks but also a lot of pros. They are also very broad in terms of what is available, with different fees, terms, agreements etc… To get a bridge you really will need a specialist to help navigate you through the options or be an experienced investor yourself.

 

Taxes for foreign investors

 

SDLT

The UKs most substantial tax for buying property is SDLT (Stamp Duty Land Tax) also just known as Stamp Duty.

The tax is a one-off payment you must make when buying a property, and will be a fixed percentage of the property you buy, depending on the value of the property as follows…

 

Property Price	SDLT for Foreigners
Upto £125,000	5%
The next £125,000 (the portion from £125,001 to £250,000)	7%
The next £675,000 (the portion from £250,001 to £925,000)	10%
The next £575,000 (the portion from £925,001 to £1.5 million)	15%
The remaining amount (the portion above £1.5 million)	17%

 

Foreign Property Income Tax UK

The standard income tax for all earners in the UK will be applicable on your earnings. However, in the UK if the rental income is less than £12,570 then the tax is 0%. This allows you to easily have 2 or 3 properties before you must pay any tax.

Most foreign investors will also set this up in a limited company meaning you may not pay yourself a salary or can control how much you pay yourself. So, if you have a company then you could pay corporate tax on your rental income instead, but then the money wouldn’t be yours but your companies, and you would only be able to use that money for your property company.

We are not tax advisors so cannot go into too much detail on how these taxes work, which is why we strongly suggest you speak to an FCA approved advisor (accountant, broker etc…)

With Income tax non-UK residents have an advantage over UK residents. If you’re a UK resident, you must include any other income alongside your rental earnings, but as a non-UK resident you don’t have to do this. This means if your rental threshold is below the £12,57- threshold then you don’t have any income tax, regardless of how much you make in another country. This is thanks to a double taxation agreement the UK has with Many countries.

However, the UK does not have double taxation agreement with every country, meaning you will need to find the exact tax rules in your country to see if this applies.

To learn more about these tax treaties visit the official UK government site and find your countries agreement… https://www.gov.uk/government/collections/tax-treaties

 

Capital Gains Tax

If, you sell your property then you will have to pay a one-off percentage payment of the profit you make. There are a lot of factors that can change how much is deemed as profit.

Capital gains do change every so often but typically will be set for many years, and it also differs depending on factors such as, are you a trust, individual or company.

 

• A non-resident individual 10% or 20% tax for non-residential property.
• For residential property 18% or 28% CGT.
• A non-resident company will pay a flat corporation tax of 17%.
• A non-residential trust will pay a 20% tax on non-residential property
• Residential property for a trust will pay 28% CGT

 

Inheritance Tax

In the UK when assets are passed from one person to another as an inheritance then there is a huge 40% tax, which applies to foreigners as well.

However, the good news is the tax for the property only applies to anything over £325,000, meaning this first £325,000 is tax free with the property.

 

Examples

• A £600,000 property you only must pay 40% of £275,000, which equals £110,000
• For a £300,000 property you have no inheritance tax to pay

 

Other fees and costs

 

Currency Exchange fees

This can vary greatly depending on many factors from your local currency, current inflation, and even daily trends of currencies on the day of transfer.

Savvy foreign investors may take advantage when the pound is at a low against their own currency. This can easily cover the cost of any fees and make your money instantly worth more.

What you will want to do is find a good FX broker who can lock in a rate for you, this will give you time to make the purchase at an agreed currency rate, helping to avoid any last minute shifts in the currency markets.

 

Setting up a limited company

Ideally you may want to buy a property in a UK limited company. As a foreign investor there is nothing stopping you from doing this.

There are tax companies that can help you do this in the most tax efficient way possible, however it is also a straight forward process, and the cost of setting the company up itself is very small. We use a company called Get Ground who help you in this whole process at a minimal cost and will then assist with everything such as accounting, legal documents, bank accounts etc…

 

What Documents you need to invest

You don’t need loads to be eligible to start the investment process as a foreigner…

• Proof of identity – driving license or passport.
• Proof of address – a bank statement, utility bill, or driving license.
• Source of funding – to show where your money comes from, a payslip or tax return.