It is remarkable how quickly conversation amongst the British moves to property, particularly in Londonâ¦ or perhaps that is just me.Â Soaring prices, school catchment areas, loft extensions â all subjects to thrill or bore to tears, depending on your point of view.
A lot of people in the UK have been using property as a pension replacement or supplement for a long time â hold for long enough, and you wonât go wrong.Â In fact, with low interest rates, a kindly bank and very little effort, the returns can be considerably better than anything any fee-hungry equity fund manager can offer. And with conservative planning laws and a growing population, the supply-demand dynamic surely points to an endless, upward trend.
Still, depending on when you left the UK, you might get a shock when you see the cost of entry. For years, there were two stamp duty rates â 0% and 1%. Then in came Labour in 1997, and stamp duty has been creeping, some might say lurching, upwards ever since.Â The top rate, applicable to properties over Â£2m, is now 7% if you buy privately, and 15% if you use a company.Â What is more, residential properties bought via a corporate structure to be lived in by the owner and valued at over Â£2m, are likely to get clobbered by new annual taxes of Â£15,000 or more. Even the more modest end of the spectrum, such as a 4-bed house in a good area of London, is likely to come in at over Â£1m and lead to a 5% stamp duty payment. All this means that if you are buying as an investment, there is quite a hurdle to jump before your property will be worth more than your total investment. Fortunately, to date, central London property seems to be managing some serious growth, with official Land Registry data showing average property prices in the City of Westminster rising some 55% since January 2007, even taking into account a dip from 2008-09.
One key factor before investing in the UK, is to plan all the tax logistics well in advance, particularly if you, or your immediate family, are thinking of becoming tax resident.Â The UK tax authorities have ideas about what is rightfully theirs, which are somewhat at odds with what might seem fair or just, but these potential pitfalls can be avoided by planning before becoming UK tax resident.
Needless to say, box-ticking is a major hassle in the UK â whether you want to open a bank account, get tax advice or hire a solicitor, they all require proofs of address and ID.Â We now advise our clients to get their names onto their utility bills (seeing as they usually show their landlordâs or grandmotherâs) and then make several certified translations, all because British institutions believe that a utility bill is somehow vital in order to prove oneâs address.
It isnât really possible to cover everything in a brief article like this.Â I believe the most important thing to remember is that, to take advantage of all the opportunities that UK property provides, it is well worth preparing the ground in advance.Â Although not tax or legal advisors, we are used to guiding our clients through the issues that arise so that our clients can act quickly and decisively.
Tom Wiseman-Clarke worked in Moscow between 2001 and 2007.
He is nowÂ Director of Profit Properties Ltd (www.profitproperties.co.uk).