If you’re buying a property in the UK as a non-resident, it’s crucial to do your research. From the various terms used to the different types of property available, buying a residential or commercial property in the UK can vary depending on your circumstances, financing and long-term investment goals.
With a growing number of international investors choosing to purchase property in the UK due to relatively low house prices, government initiatives and high demand, there has never been a better time to invest in the UK property market. However, navigating the UK property market can be confusing, so we’ve put together this comprehensive overview for overseas buyers to ensure your investments are tailored to you and your portfolio.
So if you’re considering investing in UK property but aren’t sure where to start, this guide is for you.
Can foreigners buy property in the UK?
Yes, you can buy a property in the UK as a foreigner. No legal restrictions exist on foreigners, including residents and non-residents, buying a property in the UK. You also don’t need a visa to invest in UK property, although you may need a UK visa to visit your property.
It’s important to note that obtaining a UK mortgage as a foreigner might be more challenging.
If you plan to rent out the property, we recommend working with a third party like Yield Investing to find hands-off investment properties that don’t require managing on your end.
Does buying a house in the UK give you residency?
No, buying property in the UK doesn’t automatically grant you the right to stay in the country. Your ability to stay in the UK will depend on your visa and/or residency status. To legally reside in the UK, you’ll need to obtain the appropriate visa.
Owning a property in the UK can be a factor in some visa applications, but it’s not the sole determining factor for your right to stay in the UK.
One option to gain UK residency is to become an official property landlord, which may provide certain rights and benefits. However, becoming an official landlord doesn’t automatically grant residency or citizenship in the UK.
Is it profitable to invest in rental properties in the UK?
Foreign investment in UK property can be profitable and return a strong ROI providing you understand how to navigate the UK property market and choose the right investment property type for your goals. Here’s why:
1. Relatively low property prices
UK property prices are comparatively lower than in countries like the US, Australia, Canada, etc., offering attractive investment opportunities. As property prices grow, you’ll likely see a good ROI when you sell the property.
2. Excellent government initiatives
The UK government offers homes for vulnerable adults as part of affordable housing initiatives. Landlords can benefit from these rental contracts, which offer hands-free and high-yield property investment opportunities whilst supporting individuals suffering from different circumstances.
3. Expert advice from firms Like Yield Investing
At Yield Investing, we focus on providing clients with low-risk property investments that offer a steady rate of return. Our value proposition involves offering ethical investment opportunities without sacrificing financial returns. Investing in completed and rented social housing properties means you’ll experience less hassle while still benefiting from the rental income.
UK property options for international investors
When looking into purchasing a property in the UK, foreign investors have lots of options. Considering the property type, title and purpose will help you make a well-informed decision that aligns with your financial objectives. Let’s take a closer look!
1. New build vs resale properties
With a new build property, you are the first person to own the property. They tend to be more expensive than resales. However, a new property will often come with warranties and better energy efficiency.
A resale property has had previous owners and is usually sold by the most recent owners via an estate agent. Resales may be more affordable upfront but can have hidden costs that surface later depending on the property’s age and condition of the property when you purchase it.
2. Leasehold vs freehold
With a leasehold title, you own the property for a set period but not the land it’s built on. When the time expires on your leasehold, you will need to renew it, which adds an additional cost at a later date.
Freehold titles grant you full ownership of the property and land it’s built on for as long as you own it.
3. Commercial vs residential property
Residential properties can provide rental income through tenants and may appreciate capital value over time if managed well. If you rent out a residential property privately, either independently or with an estate agent, you may have periods between tenants and won’t receive rental income during that time.
Commercial properties can offer more immediate income streams, such as service charges and tenant payouts, but these can fluctuate due to market changes.
For a low-risk solution to purchasing residential property in the United Kingdom, our property developments offer affordable housing investments that provide a passive income for international investors with a great ROI.
4. Types of properties
The UK property market offers various types of housing, such as apartments, houses, student housing, social housing and serviced apartments. Each type has advantages and disadvantages, so evaluating your investment goals and risk appetite is essential before choosing a property type.
Cost of buying a property in the UK
There are two costs that domestic and international buyers need to consider when purchasing a home in the UK.
- The purchase price of the property.
- The transaction costs, which typically include stamp duty, house surveys and legal fees.
Here’s a detailed breakdown of these costs:
1. Purchase price
The most significant expense is the property’s purchase price, which can vary greatly depending on location, size, and property type. Property prices can range from thousands to millions of pounds. However, drawing on the UK’s average house cost of £288,000, you should expect to get yourself a decent place.
If you intend to get a mortgage on your UK property, you will also need to factor in costs like application fees, valuation fees, and interest payments.
2. Transaction costs
These typically amount to 2.90%–17.16% of the total purchase price and include the following:
- Stamp duty – This is a tax levied on property purchases and varies based on the property’s value, the buyer’s residency status and if you already own a residential property in the UK.
- Legal fees – This includes your solicitor and anyone else assisting with the legalities of your investment.
- Surveyor fees – If you are purchasing a resale property, it’s advisable to get a house survey to ensure it is structurally sound.
- Estate agent or broker fees – This is dependent on how you have sourced your UK property as an overseas buyer.
Cost of owning a property in the UK
Once you own a property in the UK, there are certain ongoing costs you will need to consider, depending on the type of property you purchased. These costs can include:
- Maintenance and repairs
- Legal fees
- Insurance
- Property management fees
- Utility bills
If you’re unsure which of these will apply to your property investment in the UK, let’s take a closer look.
1. Maintenance and repairs
If you privately rent out your UK investment property, you will need to budget for ongoing maintenance and repairs, including routine inspections, fixing issues, and maintaining the property’s overall condition. Additionally, you may need to allocate funds for end-of-lease repairs to ensure the property is fit for new tenants and complies with health and safety standards.
Luckily all of Yield Investing’s properties come with a full FRI lease meaning these costs are not your responsibility and are taken care of by the commercial entity occupying the lease.
2. Legal fees
Your legal fees as a property owner in the UK can include expenses for creating lease agreements, setting up company structures to protect assets, and ensuring up-to-date information is held within HMRC systems.
3. Insurance
Property owners should invest in landlord insurance, which covers risks like property damage, legal expenses, and loss of rent due to tenant default. Insurance premiums will vary depending on the property size, location, and coverage selected.
Just like maintenance and repairs, a full FRI lease means the commercial entity occupying the lease takes care of these costs, so you don’t need to worry about this.
4. Property management fees
If you hire a property management company to handle tenant matters, expect to pay a monthly fee, usually calculated as a percentage of the rent collected (typically 8-12%).
At Yield Investing, all our properties come with free lettings and management contracts, meaning you can strike this ongoing cost off your list.
5. Utility bills
While tenants often cover utility costs, you may need to budget for utilities if the property is vacant or you’ve agreed to include them in the rent.
Alternatively, if you choose to invest in affordable housing through one of our developments, the housing association or other entity occupying the lease will ensure these costs are covered.
What is property tax in the UK?
Property tax in the UK can refer to several types of taxes. One of the most common is council tax, usually around £1,000 per year. Another type of property tax is stamp duty land tax (SDLT), which has different rates depending on the property’s value. For example, there is a 0% rate for properties up to £250,000 and a 5% rate for the portion from £250,001 to £925,000. Other taxes might apply depending on the situation, but these are two of the leading property taxes in the UK.
UK Taxes for Foreign Property Owners
Any foreigners buying a UK property or considering real estate investment in the UK should understand the tax requirements. Seeking professional tax advice can help ensure you’re well informed and prepared to navigate the tax implications of your investment, avoiding any unwelcome surprises.
Potential taxes include the following:
- Capital gains tax
- Income tax
- Inheritance Tax
Here’s a rundown of the three.
1. Capital Gains Tax (CGT)
- CGT is charged on the profit made when you sell or “dispose” of an asset that has increased in value, including properties.
- Non-UK residents are subject to CGT on UK residential property gains made after April 5, 2015.
- The rate of CGT for non-UK residents is 18% or 28%, depending on your total income and capital gains for the tax year.
2. Income Tax
- You must pay income tax on any rental profits if you rent your UK property.
- Non-residents typically pay a basic tax of 20% (up to 45%) on their UK rental income from residential properties. However, different tax rules may apply if your property contains furnished holiday lettings.
- The UK has tax treaties with many countries, which can help prevent double taxation on rental income.
3. Inheritance Tax (IHT)
- IHT is levied on the transfer of UK assets upon death. If you’re not a UK resident for at least five years, your UK assets may be subject to IHT when they pass to your beneficiary.
- IHT is generally charged at 40% on assets over £325,000. However, certain exemptions, such as business relief and specific agricultural reliefs, can significantly reduce liability.
Your 7 Step Guide to Buying Property in the UK
Buying a property in the UK as a foreign investor may seem daunting, but it’s reasonably straightforward. Below we cover the seven steps you need to follow.
Step #1: Find a property
Start by determining the type of property you want to invest in, such as a residential or commercial property, new build or previously owned, etc. Consider the location and proximity to local amenities to ensure your chosen property appeals to potential tenants or buyers.
With Yield Investing’s approach to UK property investments, all of this is handled for you. We find the properties and arrange the tenants with a local housing provider, meaning all you have to do is receive the rental income.
Step #2: Appoint a solicitor
Once you’ve found a property you want to buy in the UK, you should appoint a conveyancing solicitor experienced in international transactions. Your solicitor will be responsible for liaising with all parties, negotiating any changes to the deal, managing paperwork, and finalising contracts.
At Yield Investing, we work with many independent solicitors specialising in assisting overseas investors.
Step #3: Obtain a mortgage (optional)
As a non-UK resident, if you need a mortgage, you’ll need to find a lender willing to offer one to international investors. Some UK banks and building societies provide mortgages to non-residents, but you may need a larger deposit and face higher interest rates.
Alternatively, cash purchases look more attractive to many investors who want to benefit from passive income without high-interest rates.
Step #4: Conduct surveys
Before finalising the sale, your solicitors will give you the option to conduct surveys or take out a search indemnity policy. This is to check the property for any issues that may arise from the local area or condition of the property and protects investors in the future.
Step #5: Exchange contracts and complete the purchase
Once all parties are satisfied with the terms, you’ll exchange contracts, making the agreement legally binding. A completion date will be set, and the property will be legally transferred to you upon completion.
Step #6: Register the property
After completion, your solicitor will register the property with the UK Land Registry to record your ownership.
Step #7: Manage the property
If you plan to rent out your property, you will need a property management facility in place. These services can be expensive, charging anywhere from 8-12% on average per annum, significantly eating into your profits.
At Yield Investing, all our properties come with free lettings and management contracts, meaning you don’t need to worry about fees and maintenance costs.
Buying a property in the UK is an excellent option for international investors. If you’re looking for low-risk, secure investments with a guaranteed rate of return, Yield Investing can help you get started. Our team of experienced professionals is ready to guide you through the entire process, from identifying the best property for your needs to managing and monitoring your investments.
So, don’t wait any longer — start making secure investments and build a robust financial portfolio by contacting us today!
