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UK Buy to Let: What Should Gulf Investors Know

BusinessUK Buy to Let: What Should Gulf Investors Know

Investing in UK property could serve as the perfect new investment asset going into 2023 – with potential for high returns aplenty if you have a good grasp of the costs and risks involved – yet with the current UK economic climate being one of great uncertainty, it may put off investors altogether.

However, the UK housing market is one of great tenacity due to its relative stability during periods of economic downturn. This is due to an ongoing housing demand due to factors such as the growing UK population.

Since the COVID-19 pandemic, interest from Gulf investors in UK property investment has skyrocketed – with investors expanding their property portfolio across the UK. As regional investment offers the potential for higher rental returns, investment in such areas is expected to remain steady for the foreseeable future.

One of the main draws for entering the UK buy-to-let market as an overseas investor is the relatively few restrictions you will be subjected to – for example, you do not need to be a UK resident. You would only need to acquire residential status if you plan on living within the UK for at least 6 months a year. 

This guide provides an overview of some of the costs to be aware of for Gulf investors keen to learn how a beginner should invest in UK property – a financial expert must be consulted beforehand, however. This preparation will allow you to make an informed decision, increasing the chance of drawing greater gains. 

The Ins and Outs

First and foremost, buy-to-let investment consists of purchasing a property to rent it out. This means specifically acquiring a buy-to-let mortgage – the critical difference for overseas investors will be getting an international buy-to-let mortgage instead. 

This will involve working with a specialist lender to try and find the best rates possible. In some cases, overseas mortgage lenders can also offer UK buy-to-let mortgages in the respective countries’ currency. However, it is important to consider the best option for you.

In turn, it will be helpful to consider that international investors will be subject to stricter background checks – though standard documentation will consist of providing proof of address and identity alongside your primary source of income. 

Ultimately, when investing in property abroad, it is advantageous to work with reliable partners to ensure the process runs as smoothly as possible. Obtaining a buy-to-let mortgage will involve dealing with solicitors, banks, and the agent ultimately managing the process – so it will be helpful to conduct research beforehand to have a firm understanding of the process from start to finish.

With the recent housing slump across various gulf states, it is no wonder that the UK property market may seem more appealing – but it is vital to consider the three main types of tax international investors are subject to when investing in UK property: 

Stamp Duty Land Tax (SDLT)

When acquiring a property in the United Kingdom, every investor will encounter the Stamp Duty Land Tax requirement, which operates via a progressive tax system where buy-to-let investors will be subject to varying tax rates depending on certain portions of the property price. 

Non-resident rates of SDLT will be subject to an additional 2% on top of the regular rate, which will be calculated depending on individual circumstances. For example, property purchased for £250,001 to £925,000 will be subject to a stamp duty tax rate of 5%. 

In addition, first-time buyers, for example, will receive a discount – while those purchasing an additional property will be subject to a higher tax rate. The type of property purchased will also influence the amount of stamp duty pax you will be expected to pay – residential units will differ from commercial or mixed-use properties, for example.

Stamp Duty Tax has to be paid within the first fourteen days of purchasing the property – it is advised that you use a solicitor as they will be able to identify any stamp duty relief that you may be entitled to. 

Capital Gains Tax (CGT) 

Before undertaking your property investment journey, you must have an overarching understanding of the entire procedure from start to finish. For example, upon selling an investment property within the UK, you will be subject to a Capital Gains Tax if any profit has been made. 

This tax is calculated through the property’s sale value being subtracted from the original purchase price – the exact amount you pay will vary depending on factors such as your income amount. Basic-rate taxpayers should be expected to pay around 18% CGT while higher and additional-rate taxpayers will be expected to pay up to 28%.

Conversely, should you incur a loss on your initial investment acquisition, you can carry it forward and offset it against potential future capital gains. It is also useful to know that each individual is subjected to an allowance of £12,300 – meaning the initial £12,300 of any profit generated from property sale will be free from Capital Gains Tax.

Non-Resident Landlord Scheme (NRLS)

The Non-Resident Landlord Scheme is a crucial differentiation for Gulf-based investors exploring UK buy-to-let investments. This pertains to individuals who reside outside the UK for over six months in a given tax year.

For instance, investors in Saudi Arabia will be automatically registered under the scheme, which will ensure income tax is paid solely on the UK property as opposed to any additional Saudi property the investor may also own back home. This is helpful as it prevents the prospect of double taxation from occurring.

However, this implies that UK investment property won’t be taxed – as mentioned earlier, it is essential to consult a financial expert to gain insight into the process to ensure the investment has as much chance of success as possible.  

(Photo Source Credit: Olga Lioncat)

Disclaimer: The information provided in this guest post article titled “UK Buy to Let: What Should Gulf Investors Know” is intended for general informational purposes only. It does not constitute legal, financial, or investment advice, nor should it be construed as a substitute for professional consultation.

The content presented in this article reflects the views of the author at the time of writing and may not necessarily represent the most current legal or market developments. Laws, regulations, and financial circumstances can change, and readers are advised to seek the guidance of qualified professionals before making any investment decisions or taking any actions based on the information provided in this article.

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