Are you a foreign investor in UK property? Master all the costs that affect your investment

The cost of your property and the costs associated with buying your property are the principal determinant for the financial performance of your investment. This guide’s got all you need to know if you’re a foreigner investing in UK property.

You will never be able to recover any unnecessary costs you incur at the time of purchase. Likewise, if you get your sums wrong and simply pay too much for the property itself, it is going to hurt you as well. The reality is these costs will be attached to your investment forever.

The price you and pay for a property in the UK and costs you incur when you buy are critical to the performance of your investment. 

We focus on ensuring you understand price and do not overpay for your property in future articles, but for now, we’ll assume you have an understanding of price and don’t overpay for your property.

Purchase taxes and charges associated with buying property vary significantly between different countries and will depend on the type of buyer you are (first time buyer, investor or owner occupier) and where the property is located within a country.    In this article we focus specifically on the UK, but we will cover the costs associated with Australia and New Zealand property purchases in future articles, so don’t miss these.

London Property Investment - Understand all the costs

So, what are the other costs involved at purchase of UK property that will affect the performance of your investment forever? If you’re investing in overseas property, you must be aware of all the costs.

Legal Fees

Legal fees in the United Kingdom typically have three components.

  • Professional Legal Fee – the cost of the lawyers (or conveyancers time). There is no specific convention, however, broadly speaking conveyancers will charge either a fixed fee related to the purchase price of the property (which is generally in price bands) or a percentage of the purchase price. 
  • Search Fees – the cost of obtaining legal information for due diligence such as council and utility information; and
  • Additional costs – these costs are generally referred to as disbursements.

Stamp Duty

In England and Wales Stamp Duty is generally referred to Stamp Duty Land Tax (SDLT). The tax is payable by the purchaser immediately after the completion of the purchase of a property. 

England and Wales has two SDLT regimes for property, which are:

  • First Time Buyer SDLT 
  • General SDLT

Most of our readers are investors and therefore we will focus specifically on the general SDLT here.  

General SDLT

SDLT is charged in a progressive system which applies to all property and additional surcharges apply depending on whether or not the purchaser is buying an investment property (or second home) and if they are a foreign purchaser or not. The additional surcharges are added to the SDLT and are:

  • Second Homes and Investment Property Surcharge – an additional surcharge of 3% on the purchase price for properties with a purchase price of £40,000 or more
  • Non-resident Surcharge – in addition to both the General SDLT and the Second Homes and Investment Property Surcharge, Non-resident purchasers will pay an additional surcharge on all purchases after 1 April 2021
Purchase Price SDLTUK Residents (Second home
or Investment Property)
Non-Resident
Purchasers
£0 to £125,0000%3%5%
£125,001 to £250,0002%5% 7%
£250,001 to £925,0005%8%10%
£925,001 to £1,500,00010%13%15%
£1,500,001 and above 12%15%17%

The UK Government introduced a £15,000 SDLT saving on properties over £500,000 that complete on or before the 30 June 2021 due to the pandemic, this is a temporary saving and does not apply to properties which complete after this date.

Multiple Dwellings Relief

In the United Kingdom (England and Wales) there is the additional benefit of Multiple Dwellings Relief (MDR). Under the MDR rules the relief identifies the average price paid for residential units and average price determines the rate of SDLT (with a minimum charge of 1%). This rate is then applied proportionally to the total consideration paid for all of the residential properties.  MDR applies when you buy two or more properties in a single transaction.

MDR rules require that all of the dwellings are purchased from the same vendor at the same time. MDR applies to leasehold, freehold or indeed a headlease interest (provided that the lessors’ interests when granted did not have an initial term of more than 21 years).

MDR can be used when you have a linked transaction. A linked transaction is defined as being carried out by the same purchaser and vendor or persons connected to them, so a husband and wife or other close family members may count as linked by the relief (depending on the circumstances). If you have a linked transaction between the same vendor and purchaser, it is not necessary for the contracts to be exchanged on the same day. However, it is required that a purchaser would need to clarify the circumstances surrounding the transaction to demonstrate they are linked.

For transactions involving connected parties there is no clear guidance on what a linked transaction is. So, you will need to consider the facts to determine whether the transaction is a single arrangement or series of arrangements between a buyer (and connected parties) and a seller (and connected parties). What is clear is that the transactions can be series of transactions, so it is wider than simply looking at transactions entered into on the same day. The transactions do not even have to be part of the same contractual documents.

If any of the properties are sold within a three year period of MDR being claimed, then SDLT payable on the remaining properties needs to be recomputed and any additional SDLT is required to be paid.

Different rules apply if you buy more than 6 properties in a single transaction.

Transfer Charges

In addition to legal fees and SDLT, purchasers are also required to pay Land Registration fees. These are fees payable to land registry the registration of the purchaser’s title in accordance with the table below.

Purchase Price of PropertyFee
Between £100,000 – £200,000£190
£200,001 – £500,000£270
£500,001 – £1,000,000£540
£1,000,000+£910

Don’t forget, when you’re investing in overseas properties you must consider the factors that will impact the performance of your investment. 

With so many factors that can influence the performance of your overseas investment, we recommend you take a look at our other articles on UK property investment.

Property investment is complex and multiple factors dictate whether a property is a good is investment – it’s not simply about the purchase costs.   Before making a commitment to purchase any property, be sure to run financial models so you have a really clear understanding of the likely performance of your property.    

We hope you found this article useful, read in conjunction with our other articles on investing in the UK and this should give you an understanding of the market.  We’ve produced articles not just for the UK, but also Australia and New Zealand, so make sure you take the time to consider all your options and make sure your investment is right for you. 

Please let us know your thoughts below and feel free to ask any questions.

Important notice:  Proptech Pioneer and its associated companies seeks to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect.  You use the information at your own risk and accept no liability if you rely on this information.   Proptech Pioneer is not a tax advisor, conveyance, lawyer, financial advisor or mortgage advisor.  You should seek independent advice from independent professionals before making any investment decision