With the onset of Covid 19, many people are looking more closely as to where they invest their money. Traditionally the stock Markets have been the first port of call for most people, but with a downturn in the Global economy due to lockdowns, causing uncertainty, many people are looking at physical assets such as Property for longer term investment, and in my opinion there is no better place to look for property investment than London.
Pent up demand has built up over several years due to the uncertainty around Brexit, and once this issue looked like it was settled, interest and activity in the property market boomed. Covid 19 slowed things down again, but interest in the property market never stopped, and post lockdown the opportunities available in the market look very attractive. On top of this for overseas buyers, we have a period until April next year before the overseas Stamp duty increase comes into force, the reduction in current Stamp duty, and an extremely attractive exchange rate to Sterling, especially so for Thai Based investors holding Baht and/ or USD.
Tax on UK Assets.
Before the Overseas stamp duty rate of 2% commences in April 2021, Overseas buyers are treated exactly the same as local buyers, in that they will pay the same duties and taxes and can own the property outright with all the benefits that entails. The downside of this is that the property is subject to the same taxes locals will pay, including Inheritance Tax ( death duty) at a rate of 40% on all UK based assets in addition to the zero rated band of GBP 325,000, Capital Gains Tax which depending on value taxes any investment gain on the sale of the asset at a rate of 18% or 28%. In addition to this, there is the cost of Stamp Duty Land tax on Purchase, which is mostly tiered, depending on the purchase price. However, the Buy to let/second property rate of 3%, and the overseas buyer duty, will be calculated on the full property value. If the property is rented out, then income tax may be payable on rental income.
Even with the above taxes, the UK market, and especially London, is an extremely attractive place to invest, with an excellent track record over many decades of growth, a buoyant secondary and rental market, and one of the best legal systems in the world, ensuring you know exactly what you are buying and what will be included. Buying through one of the main developers will reduce construction risk to a minimum if buying off plan. High rates of Capital growth can be acheived over the medium to longer term, and many people will plan to utilize the property for their own use, giving a UK base for them and their families. However, there are many steps that can be taken, to ensure that the Capital growth, and the full value of the of Property can remain in the hands of yourself and eventually your family in the event of a sale of the property, or the death of the owner. Further to this, depending on circumstances, we can ensure that the correct SDLT has been paid, and if not a significant sum could be refunded from Stamp Duty Land Tax paid within the last 3 years or a reduction in current Stamp Duty that is due to be paid. Experts will ensure all allowances have been utilized to reduce this amount if possible and will only charge if they are convinced a refund can be obtained.
Tax Efficient Investing in the UK Property Market
If you are planning to hold the funds to be invested in the UK market for a long period of time and potentially to pass the assets down to your children, or you currently own property in the UK and wish to pass this to your beneficiaries in a tax efficient manner, whilst utilizing the property , for income in the meantime, then there are some extremely beneficial ways for you to achieve this. UK based assets invested through, or assigned to these HMRC regulated schemes, have the benefit of being removed from your Inheritance tax liability. For a property worth GBP 2 million, this will save the estate around GBP 670,000 OR 26,000,000 Baht. In addition to this, as long as the funds remain in the scheme, even if it is used to purchase additional or upgraded assets, the sale of the asset will not be subject to any Capital Gains tax, allowing the total amount of gain to be used to purchase the new asset.
Qualifying Non-UK pensions Legislation was established by Her Majesties Revenue department in 2006, and in 2010, the Legislation was reformed to make any assets invested in the scheme by the pension holder free from both Inheritance and Capital Gains Tax. So long as the scheme meets the Pension rules in the UK, and the scheme is set up to provide an achievable income in the future, for the pension holder, any value of asset and many different kinds of asset classes can be held including Property. This will work best when the property is mortgage free, but in some schemes borrowing can be arranged if needed. Assets can be purchased directly by the scheme, or existing assets can be assigned to the scheme, although this can incur a Stamp duty fee in some cases.
This is a highly effective and tax efficient way to invest in the UK, if you are happy for the funds to remain in the scheme, and plan to invest over the longer term. It does allow asset exchange and will provide an income which can be taken from age 55 onwards. It will, by following the Pension rules allow assets to be passed on to beneficiaries and for these to be sold and reinvested without the Inland revenue taxing a large portion of this asset.
This will not meet the requirements of every investor looking at the UK Property Market, but for high value properties it can be a very effective way to secure the asset in the right circumstances.
Lee Stevens, Area Manager