Because of the strong performance of the property market in recent years, more and more foreign investors are interested in investing in UK rental property. So, can foreigners buy property in the UK?
There are no legal restrictions on foreigners buying property in the UK, regardless of if you are a resident or not. You also don’t need a visa for foreign investment in UK residential property. But there are a few things investors need to be aware of before taking the plunge into property investment in the UK.
Here’s a guide to help you understand the process of foreign investment in UK residential property, including what documents you need, if you can apply for a mortgage, what tax implications there are and what’s involved in buying property in the UK.
What documents do you need to buy property in the UK?
Foreign buyers are subject to buyer’s identity checks. This is in order to prevent money laundering and fraud. These checks are often conducted by banks and solicitors, but some property agents may carry out their own checks as well.
Because of this, there are a number of documents you’ll need to be able to buy property in the UK, including:
- Proof of identity
- Proof of address
- Proof of funds
A passport or driving license can usually be used as proof of identity, and a utility bill, bank statement or driving license can be shown as proof of address. You’ll also need to show where your money comes from. This can be done through payslips or tax returns.
Keep in mind that you may be asked for these documents at any stage of the property buying process, so it’s recommended to have them ready to begin with. This will help make the buying process much smoother.
Can I get a mortgage in the UK as a foreign investor?
Buying a property as a foreigner is easier if you’re a cash buyer, but foreigners can get a mortgage in the UK. Previously, this had been more difficult for foreign buyers. However, in recent years, this has changed with a number of new mortgage options available for foreign property investors.
If you are looking for a property investment, buying through a mortgage allows you to leverage your cash for other kinds of investment or multiple properties. Additionally, if you then rent the property out, the rental income would ideally more than cover the monthly mortgage costs, allowing you to potentially have more cash in your pocket.
However, you may face additional requirements, larger deposits or higher interest rates if you don’t live in the UK or have less than two years residency. This is because fewer lenders are willing to lend to non-residents, so you’ll have fewer options available.
It’s recommended to use a specialist lender to help you secure a mortgage in the UK, and a mortgage broker can also help ensure you find the best deal for your personal and financial circumstances.
Most buyers and investors start by applying for a mortgage agreement in principle. Having an agreement in principle allows you to know how much you’ll likely be able to borrow, shows estate agents you are a serious buyer, and it can even make you a more attractive buyer.
An agreement in principle is not final, meaning you’ll still be subject to final checks. Once your offer is accepted on a property, you’ll then need to apply for an official mortgage offer.
What tax implications are there for buying property in the UK as a non-resident?
When buying property in the UK, you will be subject to a number of different kinds of taxes, including:
- Stamp Duty Land Tax
- Income Tax
- Capital Gains Tax
There are also different tax rates for foreign investors and depending on if you invest as an individual or a company.
It’s recommended to seek out professional tax advice before making any financial decisions on purchasing a property investment and to help ensure you understand all of your tax obligations and financial options.
Stamp Duty Land Tax
Stamp Duty Land Tax must be paid to HMRC no later than 14 days from the property transaction “effective day”. This is usually from the completion date. Tax rates depend on the price of the property you’re purchasing.
Additionally, foreign buyers who aren’t residents of the UK have to pay a 2% stamp duty surcharge on residential properties. This is on top of the regular stamp duty rates and the 3% surcharge for purchases of buy-to-let properties and second homes.
Income Tax
If you earn rental income, this money is taxable. If you’re not a resident in the UK, you’ll only be taxed on the income you earn in the UK and not what you earn elsewhere.
There are two ways to pay income tax:
- Through a Self-Assessment Tax Return (if HMRC allows you to do this)
- With tax deducted by your letting agent or tenant
If you want to pay your income tax through Self Assessment, you’ll need to fill in form NRL1 and send it to HMRC. If you get approved, you’ll then declare your rental income through Self Assessment tax returns every tax year.
As a foriegn investor, you can’t use HMRC’s online services. You’ll have to send your tax returns by post, through a commercial software or by using an accountant.
If your rent is tax deducted, your letting agent or tenant will deduct the basic rate tax from your rent, after allowing for any expenses they’ve paid. They will then give you a certificate saying how much tax they’ve deducted at the end of every tax year.
Capital Gains Tax
If you make a profit from selling land or property in the UK, you are subject to Capital Gains Tax. The amount of tax paid will depend on how much profit you earn and whether you’re investing as an individual, company or trust.
This tax is payable for both direct and indirect disposals of land or property. You have 60 days from the date of conveyance to report your disposal and pay any Capital Gains Tax that is due.
What’s involved in foreign investment in UK residential property?
Before getting started in investing in residential property in the UK, it’s important to understand the property buying process and what upfront and ongoing costs you need to be aware of.
The process of buying property in the UK
To get started, you first need to know what your budget is, including the cash you have available and if you’re planning to borrow money through a mortgage. You may need to talk to a specialist mortgage broker and apply for a mortgage agreement in principle to figure out how much a lender will likely lend you.
Once you know that, you can start looking for properties. Do your research on UK property investment locations. As a foreign buyer, it can be particularly beneficial if you reach out to a specialist agent to help you, such as Chestertons. We have a range of information on our website to help you pick the location you want to buy in and expert advisors on hand to give you tailored advice.
Once you find the property you’d like to buy and a price has been agreed, you’ll need to hire a conveyancer or solicitor. They will take care of the conveyancing, which is the process of transferring legal ownership from the seller to the buyer.
If using a mortgage to help pay for the purchase, you’ll also now need to secure a mortgage deal. The mortgage lender will arrange a valuation survey. If you’re purchasing an off-plan property, the valuation will be based on the specification and plans the developer has provided.
It’s also recommended to commission a property survey yourself. The Royal Institute of Chartered Surveyors (RICS) condition report is often used for new-build properties. There are also more detailed reports, such as the RICS homebuyer report and building or structural surveys.
Once the legal paperwork is completed, you’ll need to pay the deposit and then contracts will exchange. Then, your conveyancer or solicitor will check the terms of the contract, planning documents, title of the property and any other relevant documentation.
They’ll then clarify any information and get you to sign the document. At the completion stage, you’ll pay the remaining balance, and the property will be officially yours! Within 14 days of completion, you need to pay Stamp Duty Land Tax. Your conveyancer or solicitor will usually calculate this and pay this to HMRC on your behalf.
The costs involved with buying a property investment
With UK property investment, there are a number of upfront and ongoing costs you need to be aware of if you plan to rent the property out. These are all things you need to make sure you factor in and budget for.
The upfront costs include:
- Mortgage fees and deposit
- Legal fees
- Land Registry fees
- Stamp Duty Land Tax
When renting out a property, there will also be ongoing costs, including:
- Mortgage repayments
- Repairs and maintenance
- Insurance
- Management fees
- Ground rent or service charge if applicable
Looking to buy property in the UK as a non-resident?
As a foreign buyer, it can be particularly helpful to use a specialist agent to guide you through the process of finding the right property investment for you and your personal and financial circumstances.
At Chestertons, we can guide you every step of the way. We source properties in buy-to-let hotspots across the UK’s top tenant markets, and we can help match investment properties with portfolio needs for investors all over the world.
If you’re interested in buying property in the UK as a non-resident, please get in touch with our team of expert advisors.
