Roger Harding Tax Director
Your future in the UK post-Brexit and post-Covid 19: what you need to know
Over the last twelve months, the United Kingdom (UK) like the rest of the world, has seen the COVID -19 pandemic impact hugely on our ability to travel freely, to relocate for business, work, investment and education. We now see some light at the end of the tunnel with the UK’s mass vaccination programme which has seen infection and (thankfully) mortality levels fall dramatically. This is finally giving people hope for the future, resulting in renewed interest in the UK as a safe place to live, to invest in, and as somewhere to educate their children.
Immigration rules in the UK have recently changed to encourage and to welcome all individuals with the skills and qualifications, the academic aspirations, the funds and the talent to live and/or to make a very welcome investment in the UK economy. An indirect result of Brexit’s effect on the UK property market is the prevalence in private equity investors and overseas pension and wealth funds (some coming together in joint ventures) increasingly seeking to acquire properties in the UK, particularly now that current pricing and exchange rates are favourable for inward investment .
Prime real estate remains one of the more resilient sectors of the property market for overseas investors, as has been proven over the decades. At Ince, we have seen an increase in transaction velocity as the uncertainty surrounding Brexit and the pandemic is finally beginning to subside.
If you are based abroad and looking to relocate or to invest in a post-Brexit, and optimistically, a post-Covid UK property market, our brief Q&A outlines some of the things to consider:
I want to move to the UK. What do I need to do next?
The principal investment, business and academic routes into the United Kingdom are:
Tier 1 (Investor) – This would require you to hold at least £2 million and you must intend to invest this sum into share capital in actively trading UK companies. After a five-year period and maintaining the investment for that time, you will gain permanent residency. With an investment of £5 million, permanent residency will be granted after three years and with an investment of £10 million permanent residency is attained after two years. Once permanent residency is obtained you may withdraw the investment and use the funds as you wish. A spouse and dependant children may also apply under this category.
Innovator Visa - This immigration route would require you to demonstrate that you intend to open a business in the UK and that you have at least £50,000 available to do so. The application requires the business idea to be innovative and needs to have been positively assessed by a recognised endorsing body (on the Home Office list of approved endorsers). Permanent residency in the United Kingdom can be attained between three and five years depending upon the performance of the business.
Start Up Visa - You must be endorsed by an authorised body that is either a UK higher education institution or a business organisation with a history of supporting UK entrepreneurs. You must be able to show that you have a new business idea, meaning you cannot simply join a business that is already trading. You must have an original business idea which is different from anything else on the market and which is viable i.e. it has potential for growth.
Global Talent - You can apply for a Global Talent visa to work in the UK if you’re a leader or potential leader in one of the following fields: academia, research, arts and culture, or digital technology. There are broadly two categories of consideration within these areas and that is if you are established, or if you can show you have considerable promise to succeed within one of these areas. After five years in this category you can apply for permanent residency.
Tier 4 Student Visa – With some of the best academic institutions in the world, the UK is a great place to study, particularly at degree level. The UK Immigration Rules ensure that all academic institutions require a Sponsor License which helps to maintain the credibility and standing of the academic institution and offers protection to foreign students. You would require a Certificate of Acceptance (CAS) from the academic institution and evidence that you meet a pre-determined and published maintenance requirement. If you successfully follow a graduate program then you will, via the Post Study Work scheme, be able to apply for a UK work permit upon graduation.
The majority of people moving to the UK in the above categories will all require address where they will reside, either on a temporary basis or for a longer period of time if they plan to remain permanently, and it is important to get legal advice when entering into a tenancy agreement, or to find a good lawyer if you are planning to buy a home in the UK. In equal measure, investment in commercial property in the UK from overseas has always been an attractive prospect and despite the pressures of the pandemic, demand and investment continues to remain high.
If I decide to move to the UK, I will want to rent a home. What do I need to know?
- Make sure to find yourself a good and reputable estate agent to assist you in your property search.
- Since 1 June 2019, most agent’s fees charged in connection with a tenancy are banned. A charge to reserve a property is permitted but it must be refundable and it cannot equate to more than 1 weeks’ rent. Viewing fees and tenancy set-up fees are not allowed.
- Since 1 June 2019, there has also been a cap on the deposit that you (as a tenant) would be required to pay at the start of your tenancy agreement. If the total annual rent is less than £50,000, the maximum deposit is five weeks’ rent. If the annual rent is £50,000 or above, the maximum deposit is six weeks’ rent. The deposit must be ‘protected’ during your tenancy and will be refundable at the end of your term subject to the rent being up to date and the property being returned in good condition (allowing for fair wear and tear).
- Your landlord must allow you to stay in the property for a minimum of six months. Most landlords offer tenancies for a fixed term of six or twelve months (but it is of course possible to negotiate a longer tenancy period possibly with the negotiated right to bring the tenancy to an end after an agreed period of not less than six months). Alternatively, you could agree to a tenancy which rolls over on a weekly or monthly basis. These tenancies have no fixed end date, but your landlord must allow you to stay in the property for at least six months.
- Landlords in England must check that all people aged 18 or over, living in their property as their only or main home have the right to rent before the start date of your tenancy agreement. There are two types of right to rent checks; a manual document-based check or a check via the Home Office online checking service. Your landlord can’t insist which option you choose but not everyone can use the online service.
I want to purchase a residential property in the UK to live in or rent out. Should I purchase a freehold or leasehold property?
Freehold and leasehold are two of the most common forms of legal ownership in property in the UK. If you choose to own the freehold interest in your property you own the property the air above it and the land it sits on. Your ownership will not be limited in time and your interest in it only extinguishes when it is transferred to someone else.
If you choose to own the leasehold interest in your property, you will own your property for a set period of time (perhaps 99, 125 or even 999 years) annum). So long as the lease was granted for an initial term of not less than 21 years it can in most instances be extended for a premium.
I want to own a freehold residential property. What’s the catch?
Those wanting to own a freehold premises, are often attracted to the perception of “owning [their] property outright”. This often leads to the mistaken belief that they can do anything they like with their property without limit which, (as some find out the hard and expensive way), is not quite the case:
- If you want to develop your property, you will need to obtain planning permission from your local authority. This requirement will restrict what you can do.
- If you buy a property considered to be a listed building or situate in a conservation area, your ability to develop will be further restricted by the need for additional consents.
- Your property may be subject to historical binding agreements governing the way in which you can develop your property.
- You may owe responsibilities to a wider estate in which the property is situated, such as an obligation to pay an “estate rentcharge” (not to be confused with “rent” as you might know it). A rent charge is an annual or other periodic (usually very small) sum charged on or issuing out of property.
- You may be planning to develop in a way that requires you to put your neighbour on notice and seek what is termed a Party Wall Award.
I want to own a leasehold residential property. What’s the catch?
If you own a leasehold property, you (as the tenant) will have to comply with the terms of your lease during your period of ownership. Under your lease, you are likely to owe a number of obligations to your landlord and others leaseholders in the building including:
- An obligation to pay what is termed ‘ground rent’ to your landlord (usually up to no more than £250 per annum). If you choose to finance your leasehold purchase with a mortgage it is always advisable to first check with your mortgage provider that it is happy with the level of ground rent imposed by the lease. If the ground rent is too high or the way it increases is not kept in check, it can affect both this marketability and its value.
- You will be liable for a percentage of the cost your landlord incurs in keeping the building insured and maintaining the structure common parts and lifts etc.
- You will usually be responsible to the landlord for making sure your property is kept internally in good repair and condition.
- You may require your landlord’s consent if you choose to sell your property on at a later date.
- As well as obtaining consent or permission from your local authority to develop your property, your lease may also restrict your ability to develop it without your landlord’s consent.
Will I have to pay tax? If so, how much?
No tax is payable for renting a home to live in. If you wish to acquire a long leasehold or freehold property, Stamp Duty Land Tax (SDLT) is payable based on the consideration paid for the interest acquired. SDLT is charged at rates starting at 0% up to 15% on separate slices of the total consideration. A surcharge to the rates of 3% applies if one or more property is owned anywhere else in the world at the time of purchase.
From 1 April 2021, purchases by non UK residents will be subject to an additional 2% surcharge (making the highest rate 17%). The 2% applies if at the time the purchase is completed, an individual was not present in the UK for at least 183 days in the previous 364 days. If UK residence is obtained by being present for 183 days in the following 364 days, a refund of the 2% can be claimed.
SDLT current and forthcoming rates are available at: https://www.gov.uk/stamp-duty-land-tax/residential-property-rates.
Other taxes payable in the UK depend on residence and domicile with the exception of tax on UK real estate assets. If both resident and domiciled in the UK, income tax is payable on worldwide income as it arises, subject to relief that may be available under a Double Tax Treaty. Residence is determined by the Statutory Residence Test (SRT) and is mainly based on the number of days present in the UK. Domicile is generally where the individual was born or where parents were born. UK domicile for tax purposes is deemed to arise once individuals have been resident in the UK for 15 of the previous 20 tax years.
Income is taxed on a progressive scale at 20%, 40% and 45%. Real estate capital gains are taxed at 18% and 28%. Gains on other assets are taxed at 10% and 20%.
UK real estate assets are subject to income tax on net rental profit, Capital Gains Tax (CGT) upon disposal and Inheritance Tax (IHT) on death of the owner, regardless of residence and domicile. Careful planning advice should be sought to optimise tax efficiency and ensure assets are held in the most appropriate structure. IHT is charged at 40% of the chargeable death estate above the nil rate band of (currently) £325,000.
Individuals who are resident but not domiciled in the UK do not pay UK tax on foreign source income unless it is remitted to the UK. This is called the remittance basis. Income remitted from “clean capital” is not chargeable and can be remitted freely. Clean capital is income and gains earned prior to becoming UK resident and it is necessary to nominate one’s sources of clean capital with HM Revenue & Customs (HMRC).
When resident in the UK for seven out of previous nine years, a remittance basis charge (RBC) must be paid of £30,000 to continue being taxed on the remittance basis. The charge rises to £60,000 when resident for 12 of the previous 14 tax years. The RBC is payable annually in addition to any tax on remitted income. It is possible to elect not to use the remittance basis where tax on worldwide income is less than the RBC.
Overseas assets can be kept out of the UK tax net with careful planning, which, as far as possible, should be done before becoming UK resident.
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