The UK continues to retain its place as one of the top options for property acquisition with its many luxurious offerings within the residential property market, especially for overseas investors. Here are some key aspects you might want to consider.
Freehold or Leasehold: What do you own?
Unlike other jurisdictions in the world, when you buy residential property in the UK, you do not necessarily own the property. Instead, there are two common ways to own: freehold and leasehold.
When you have purchased a freehold interest in the property, you become the ultimate owner and will have control over the property (subject to laws and planning restrictions).
If you purchase a leasehold interest in the property, you are granted a right to use and possess the property for an agreed period of time. The freehold interest in the property is superior to the leasehold, and the freeholder of the property will be your landlord, while you may be referred to as the tenant. Ultimately, the lease is a contract and both you and the landlord must comply with the terms.
Lease terms may be difficult to interpret, especially taking note of the length and ground rent provisions. We ensure we explain all terms to the buyer in a comprehensive report prior to exchange of contracts.
Getting Ready: Money on Account, Search, Go!
Once you have settled on a property, made an offer, chosen a solicitor, one of the first steps is to undertake searches. We request monies on account for this and will apply for a standard set of searches to investigate the condition and history of the property further. More complicated transactions may require additional searches.
An environmental search is essential to reveal any information about ground stability, flooding or development works that may affect the property.
Perhaps the most fundamental report to review is the local authority search, where we pay special attention to the big-ticket items in relation to planning: whether the property you are interested in buying is a listed building or whether it's in a conservation area.
It's vital to ensure that, for any works done in the property, the seller obtained appropriate consent from the local authority and landlord, followed council guidelines and building regulations, and can provide evidence for all works completed.
Enforcement against a listed building is indefinite and runs with the property; as buyer, you will inherit this issue. Any work carried out in a listed building without consent is a criminal offence.
We provide our findings for the searches in a report on title to the buyer prior to exchange of contracts and raise any additional enquiries with the seller's solicitor as required. At this stage, we reiterate our advice to the buyer to commission a survey of the property if they have not already done so.
Tax Considerations – What on earth is SDLT?
Next up – one of the key considerations when purchasing residential property in England: Stamp Duty Land Tax (SDLT). SDLT is a government tax payable on any property and land purchase in England.
Many overseas investors also become subject to surcharges on SDLT:
- Additional property surcharge: If you own another home, anywhere else in the world; your purchase is not replacing your main home and is a second or third home: your transaction will be taxed an additional 3%.
- Non-UK resident surcharge: If you are not present in the UK for at least 183 days (6 months) during the 12 months before your purchase, you are not a UK resident for the purposes of taxation and will be taxed an additional 2% on your purchase.
There are reliefs available to you if:
- You sell your main home within 36 months of completion on the purchase of your additional home, you may claim a refund of the additional property surcharge. You would need to apply for any repayment within twelve months of disposing of your old main residence.
- If you become resident in the UK for tax purposes within twelve months of your purchase, you may be eligible for a refund of the 2% surcharge. You would need to apply for any repayment within two years of the purchase date.
- In the event there were separate dwellings at the property, it could be possible for multiple dwelling relief (MDR) to apply.
- In the event the property was not suitable to live in without minor works taking place, it could be possible for non-residential rates to apply.
If any of the following apply, you do not have to pay SDLT on your purchase:
- If you are a first-time buyer, with no beneficial interest in a home elsewhere in the world, and the property is worth less than £625,000 – no SDLT is payable on the first £425,000, and
- No SDLT is payable on the first £250,000 of any residential property purchase
Please note that SDLT thresholds are subject to change and make sure to check the current rates with your solicitor prior to completion.
Finally, it is worth noting that in most cases, exchange and completion will take place on different days, although simultaneous exchange and completion is not uncommon.
At exchange, the solicitors to the seller and buyer will sign and exchange contracts:
- The transaction becomes legally binding – both parties must complete the sale/purchase on the agreed completion date, and
- The deposit is transferred from the buyer's solicitor to the seller's solicitor.
Completion is the legal finalisation of the property transaction:
- The remaining monies required for completion are sent to the seller's solicitor,
- The new owners get the keys,
- All formal transfer documents are signed and dated on completion, and
- The buyer's solicitor will commence post-completion matters by applying for the transfer of ownership at the Land Registry and paying Stand Duty Land Tax on behalf of the buyer.
While it may seem daunting at the outset, our Residential Property team is here to make this process seamless and straightforward for you. Please do not hesitate to get in touch with us with any queries.