Why Invest in UK Real Estate from the UAE?
For many investors across the UAE, the UK represents an opportunity to invest in a consistent, secure market that can deliver high-value rental returns.
While the UAE market has been in a downtrend for several years – and heavily impacted by the pandemic – the UK has flourished and continues to provide above-average value for property investors.
According to Savills, the UK as a whole is forecasting price increases of 21.5% over the next four years, while rental prices are expected to increase by 8.5%.
Driven largely by an undersupply of property across the country, this is having an incredible effect on the buy-to-let sector, which is expected to continue rising by 2025.
Ready to invest in the UK? You need a property investment company in Dubai.
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How to Invest in the UK from the UAE
For international investors, the process of buying UK property can differ slightly from domestic residents. Ultimately, it’s about forward planning and understanding the differences in tax that you may be expected to pay.
Can UAE Residents Buy UK Property?
Yes, there are no restrictions for UAE residents that want to buy UK property for buy-to-let purposes.
However, if you’re looking to live in the UK, you’ll need residential status, which requires a visa such as the British National Overseas Visa.
You don’t need residential status if you’re simply investing in UK buy-to-let property.
What are the necessary preparations for investing in the UK?
The first major difference for UAE buyers is checking that you’re eligible for a mortgage. Typically, investors from the UAE will need to go through a specialist lender to find the best rates on an international buy-to-let mortgage, although more high street lenders are now offering products.
Likewise, if you’re a non-UK resident, you may encounter tougher identity checks that require more paperwork. It’s a good idea to have as much of this to hand as possible to expedite the process.
Working with trusted partners that can source properties and support you through the legal process is also usually a good idea.
What UK taxes do UAE residents need to consider?
Stamp Duty Land Tax (SDLT) is a mandatory tax for buyers of UK property.
Stamp Duty is worked out as a percentage of the sale price and varies based on the value of the property and buyer status.
If you are not a UK resident, you will be required to pay a non-resident rate of 2% on top of the base rates.
Similarly, buying a buy-to-let property if you already own property in the UK will incur an additional 3% on top of your other rates.
Council Tax is another charge that you may find yourself incurring. This is based on the status of your property and if you’re letting, it’s typical that the tenant will pay the Council Tax.
If your property is an apartment, you may also be required to pay an annual service charge, which covers the cost of maintenance and is shared amongst co-owners of property within the block.
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What do UAE investors need to know about UK tax?
The UK remains a top investment destination for UAE investors but what should UAE investors consider around UK financing?
Stamp Duty Land Tax (SDLT) – This is a tax measured in bands that increases alongside property prices. Any additional property and/or overseas purchase can increase the SDLT you pay.
Capital Gains Tax (CGT) – This is paid whenever you ‘dispose’ of a property and is calculated by subtracting the sale value from the original purchase to find the total gain.
Non-Resident Landlord Scheme – Overseas buyers are required to enter the non-residential landlord scheme, which ensures they only pay income tax on rental profits in the UK, rather than the country they are based. This avoids double taxation.
Common FAQs for International Investors
Can international investors buy property in the UK?
UK property has long been a safe haven for overseas investors, and in recent months, the number of overseas landlords in the market has reached an all-time high.
According to research, there are around 184,000 international landlords with UK properties, which has increased 19% in the past five years alone.
While the process of purchasing UK property from overseas is generally a longer process and comes with more considerations, the returns often compensate for these. For overseas landlords purchasing additional property in the UK, a 3% charge will need to be paid.
This 3% will also be stacked with the 2% Stamp Duty Land Tax surcharge that applies to overseas investors.
How does buying UK property as an overseas investor work?
The UK is unique in that overseas investors must conduct their due diligence before they enter into any form of a binding contract. Typically this will involve:
- Checking the title of the property
- Obtaining a survey
- Carrying out searches of local authorities
- Obtaining information from the buyer
- Agreeing a terms of contract
All of this is usually done through a solicitor, which should be appointed locally in the UK. If the property is being financed through a mortgage, then an offer from the lender is also needed.
When both parties are ready to proceed, each then signs a separate but identical contract. Your solicitor will then agree with the vendor that contracts are binding, a process called ‘exchange of contracts’. At this stage, the buyer pays a deposit of between 5 and 10%.
Completion can take place on the same day as exchange, but usually there is a relatively short intervening period for legal and practical matters (usually no longer than 28 days). On completion, the balance of the price is paid, the title is transferred to the buyer and you can then take full possession of the property.
Working closely with a property investment company is one way to take some of the hassle out of the buying process. At Joseph Mews, for example, we work with investors buying off-plan property to guide them through the entire process, helping with mortgage applications, appointing advisers and maximising returns.
Can overseas buyers get a UK buy-to-let mortgage?
The most common ways for an international investor to buy a property is either through cash or by using a specialist buy-to-let product.
In the current market, there’s plenty of mortgage products available including specialist products for non-residents and expats. The most important thing? It pays to shop around as speaking with an expert can usually result in you finding the ideal product to suit your needs.
Whatever option you go for, you’ll be expected to produce several instances of paperwork for the application, these include:
- Passport
- Proof of creditworthiness
- Mortgage affordability
You’ll also need a deposit (upwards of 25%) and demonstrate that you’ll be generating enough rental income from the tenant to cover the mortgage interest.
The amount you can borrow depends on how much rent the property can generate. Lenders will typically need your rental income to meet 125% of the monthly interest payments on the loan.
Can I attain residency through buying a UK property investment?
No, buying a house in the UK (to live or for buy-to-let) as a non-resident does not give you the right to live in the UK.
You will not receive any immigration permissions for buying a UK property and if you are interested in acquiring permanent residency, there are other routes you should take.
You can, however, apply for an Investor Visa which is one way of gaining residency in the UK.
How many UK taxes are there?
In the UK, there are several taxes to consider. From Income Tax to Inheritance Tax and Capital Gains Tax, living – or investing – in the UK comes with a variety of different responsibilities.
For property investors, the key taxes to be aware of are: Income Tax, Stamp Duty Land Tax, Inheritance Tax and Capital Gains Tax. For those who have plans of staying in the market for a long period of time, it’s crucial to be prepared for every one of these taxes.
While Stamp Duty Land Tax will need to be paid when purchasing the property, any rental income will be subject to Income Tax. Additionally, Capital Gains Tax will need to be paid on the sale of the property and estates worth over £325,000 will be subject to Inheritance Tax.