By Nedbank Private Wealth
If you are an international investor and have decided to buy property in the UK, there are five things we think you should consider:
1. Mortgage options
For South African residents, consider choosing a lender based in an offshore jurisdiction, such as the Isle of Man or Jersey, or a private bank that supports clients globally and can work with wealth that sits outside of the UK.
Offshore lenders generally work on a bespoke basis and look at each case individually. They tend to favour higher value properties, with minimum loan amounts usually set to £300,000. As a general rule, they will lend up to 60% to 75% of the property’s value, which means you will need to have a deposit of 25% to 40%.
2. Hidden costs
When deciding how much you want to invest in a property, there are a range associated costs that will need to be considered over and above the purchase price. These include mortgage set-up costs, legal fees and stamp duty, depending on whether you are buying a home to live in or as an investment property.
Once you have had your offer accepted, you will need to appoint a UK solicitor to manage the purchase process for you. Stamp Duty Land Tax is based on the purchase price of your property and is payable within 14 days of completing the transaction. From April 2021 a 2% stamp duty surcharge was introduced for non-resident buyers. The surcharge is in addition to the 3% if you own another property anywhere else in the world.
Using a mortgage to fund an initial property purchase is a common way to limit your exposure to UK inheritance tax.
Depending on the purpose of your investment, you can choose to buy your property in your own name, or through a company or trust structure. While this is an option to consider, if the property is for you and your family to live in, it is usually more efficient held in personal names.
4. Taxing considerations
The UK government has introduced rules that mean the tax cost of buying, owning and selling residential properties in the UK has increased, particularly for non-residents. These changes include the introduction of non-resident capital gains tax (NRCGT).
Even though there could be estate planning and asset protection benefits through owning your property through a company or trust structure, the benefits of using a structure should always be weighed against the significant impact it can have on your tax situation.
The UK tax system is notoriously complex, so it is always important to take appropriate specialist advice in relation to your individual tax circumstances. Nedbank Private Wealth does not provide tax advice but can work with your tax adviser.
5. Currency exchange
Using an offshore private bank that offers accounts in multiple currencies makes transferring large sums of money easy and cost-effective, with competitive foreign exchange rates available. A private bank can also offer options such as ‘forward contracts’, which enable you to lock in an exchange rate for a future transfer. This is invaluable for your budgeting as you will have the security of knowing what rate you will get on the day you wish to make your transfer.