Real Estate

What are the pitfalls for non-resident UK property buyers?


My wife and I are looking to invest in property in London. We currently live in Hong Kong but hope to relocate to England at a later date. Are there any pitfalls to be aware of before deciding on a purchase? We know there is a non-resident stamp duty land tax charge, but are there requirements for different types of property acquisitions?

Robert Barham, a property lawyer at Forsters, says that over the past decade or so the British government has tightened up on some of the tax advantages previously enjoyed by overseas purchasers. From that point of view, buying a property in England is perhaps less attractive than it once was from a tax planning perspective. Having said that, there are of course many reasons why someone would want to purchase a property in London.

As you point out, there is a 2 per cent stamp duty land tax surcharge payable by overseas buyers on property bought in England and Northern Ireland. It may be worth noting that this is only applicable if both husband and wife are non-resident in the UK. Additionally, there is a 3 per cent surcharge payable for anyone who is purchasing a property as a second residential property, even if their first residential property is located outside the UK (the surcharge is 4 per cent in Scotland and Wales).

For example, when buying a house in England or Northern Ireland costing £1.8m (after September 30 2021 when the Covid-19 reduced rates are no longer relevant) a UK taxpayer buying a principal residence would pay stamp duty of £129,750; or £183,750 if it were a second home. However, you, as a non-resident buyer purchasing a second home would pay £219,750.

Robert Barham, a property lawyer at Forsters

Non-resident purchasers should also be aware that they (like UK taxpayers who are also higher or additional rate taxpayers) will be subject to UK capital gains tax when they dispose of their investment property at a flat rate of 28 per cent of the increase in the value of the property during their period of ownership.

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In the past, solicitors advising non-resident purchasers of UK property were likely to expend considerable time and effort in advising the buyer of the appropriate ownership structure to adopt to minimise exposure to UK tax. This now rarely arises because the advantages of using such structures have been largely nullified by tax changes, and indeed many structuring arrangements will actually result in a higher rate of tax.

For example, buying a family home in England through a non-UK company will generally result in stamp duty being charged at a flat rate of 17 per cent (a charge of £306,000 in the above illustration). In most cases, there is no realistic or tax-effective alternative to buying property in the names of the actual buyers. One perceived disadvantage of this is that because the Land Registry’s records are open to inspection to anyone, it is possible to see who owns every property including the price paid by the current owner.

However, as to whether buyers will lose money, depends almost entirely on the whims of the property market. 

How can we resolve family row over a will?

A family member’s will has caused a huge row as some crucial people have not been included as beneficiaries and are threatening litigation. We live in England. Is there a sensible way to solve this? I’m worried this will create a divide in our family if not sorted out quickly.

Philip Youdan, partner at Cripps Pemberton Greenish, says the situation you face is not uncommon — in England and Wales individuals are generally free to leave their property and belongings to whom they choose. Sometimes, however, the terms of a will may come as a surprise, or there may be something odd about it and this can lead to a dispute.

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Steps can be taken to resolve these disputes at an early stage. The two main ways to dispute a will are to challenge whether the will is valid or bring a claim for provision or greater provision from the estate.

Philip Youdan, partner at Cripps Pemberton Greenish

The starting point for any solicitor asked to advise on a validity claim is to investigate how the will was prepared. If a solicitor was used, this will involve requesting the will file — the record of the instructions they received and the notes taken. If a solicitor was not used, they will need to talk to the witnesses. To assess a provision claim, details of the disappointed beneficiaries’ assets and needs are required. 

Obtaining this kind of information at the outset can often lead to an early resolution without going to court. For example, in a validity claim, it may help the disappointed beneficiary to understand their omission, and be better able to live with it, by knowing that the will represented the deceased’s wishes. Alternatively, in a provision claim, understanding the financial position of the disappointed beneficiary may make those facing the claim more willing to consider a compromise.

While discussions can take place informally, the prospects of reaching a fair, enforceable agreement can be improved through the parties having legal advice and engaging in more formal discussions. Not everyone is eligible to claim and strict legal time limits apply, so getting early advice is important.

The most common means of reaching an agreement in will dispute cases without going to court is through mediation. An independent and impartial mediator will facilitate discussions between the parties and assist them in reaching a settlement. Mediation is more flexible than court proceedings and the resolutions which the parties can reach are much wider than those enforceable by a court.

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For example, mediation allows parties to discuss individual assets of a deceased’s estate, some of which may not have a high financial value, but which hold great sentimental value to a party. Mediation is also less expensive than litigation and can be entered into at an early stage, when costs incurred are normally relatively modest.

This option is confidential and non-binding, which means that if the parties are unable to reach a settlement they are not prevented from bringing the matter to court. Even if agreement is not reached, the issues can often be narrowed and this may make subsequent agreement more likely.

Mediation is not always the best approach. Another option is to attempt to negotiate a compromise in writing after exchanging correspondence in which each party sets out their position. Again, by understanding the claim being made and the counterarguments, this can allow constructive dialogue to occur.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com.

Our next question

I have received a letter from HM Revenue & Customs regarding my “overseas assets, income or gains”. I’ve been told by a friend that this is a so-called nudge letter and should not be ignored. The letter comes with a certificate of tax position to complete, but I’m wary about completing this. What should I consider before responding?



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