Navigating the ongoing challenges of UK real estate

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Standard Chartered’s Armando Rosselli explains why simplification could be the way forward for foreign investors in an increasingly complex world

Despite recent and ongoing challenging economic headwinds – from Brexit and high interest rates to the pandemic and the rise in geopolitical tensions worldwide – the UK property market remains vibrant, continues to grow and has stayed resilient.

The relative political stability of the UK on the global stage and a strong rule of law, combined with the rich history and element of prestige associated with the UK, means the country – and London in particular – remains an attractive, stable and profitable location for wealthy overseas investors. To provide an idea of the size of the market, UK real estate purchases by foreign investors have totalled £50bn since the start of 2022, with the UK set to receive over £10bn in property investments from the US alone in 2024. 

For high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs), real estate can act as a focal point of an investment strategy, be used as a diversification tool and long-term hold for a rounded investment portfolio, or simply be for private use, for instance as a home or base for family relocating to or regularly visiting the UK.

Standard Chartered Private Bank regularly sees clients originating from Africa, Asia and the Middle East tapping into or expressing an interest in the UK market. Investors are varied, ranging from Middle Eastern families with multigenerational wealth looking to buy properties for their children or families, to wealthy investors from Asia looking to invest in buy to lets or commercial buildings to diversify their investment portfolio.

Despite the global popularity of the UK real estate market, buying a property as a non-UK resident presents numerous challenges, with the market defined by complex tax and legal requirements. The past decade in particular has seen a multitude of changes to the tax landscape in the UK.

Tax and transparency evolution in UK real estate

In recent years, the already complex UK tax landscape has undergone significant change in the residential property space which has made buying, owning or selling a property potentially more costly for foreign investors. For instance:

• From 2013, Capital Gains Tax became payable on the sale of residential property by non-residents.
• Since 2013, where certain conditions are met, a new annual charge was introduced for residential properties under company or trust ownership by the name of Annual Tax on Enveloped Dwellings (ATED). 
• From April 2017, UK real estate has been subject to UK Inheritance Tax (IHT), regardless of how it is held (for instance through a company or a trust) at a rate of 40% after any applicable allowances and reliefs. 

The past few years have also seen various iterations of the bands and rates of Stamp Duty Land Tax (SDLT) applicable to UK residents, non-UK residents, acquisition of residential properties through structures and the acquisition of residential properties for investment purposes. 

Additionally, there have been a number of changes to the deductibility of mortgages and their associated charges from an income tax, corporation tax and IHT lens. 

There also have been greater efforts in the UK to generate greater transparency of UK residential property ownership, notably:

• Since 2022, non-UK companies looking to buy, sell or transfer UK residential property are required to register details of the beneficial owners of such structures with Companies House through the UK’s Register of Overseas Entities.
• From 2017, non-UK trusts holding UK residential property, where historically the beneficiary’s identity would have gone unrecorded, must be declared in order to comply with the HMRC Trust Register.

These developments highlight some of the complexities and considerations related to buying property in the UK; but beyond that, stress the need for wealthy individuals and families to ensure they have a team of specialists – including wealth advisers, tax advisers, lawyers, professional trustees and corporate directors – to assist them in navigating this evolving landscape in a way that suits their vision, goals and objectives. It should be noted that such trends in respect to real estate ownership and structures are not unique to the UK and have been a focus area for governments and authorities in many parts of the world, further emphasising the need for specialists with cross-border knowledge and experience. 

What is best for me?

Deciding on which type of purchasing and holding strategy to proceed with – for instance, individual ownership, through a company or through a trust structure – is fundamental to any property purchase. Historically, companies and trusts have been favoured for a variety of reasons: everything from tax and succession planning to ‘word of mouth’ recommendations amongst investor networks or even friends with similar holdings. As such, over time, purchasing residential property through structures might be perceived almost as the standard ‘go to’ approach.

However, against the backdrop of the new tax and transparency regimes, the value of continuing to use at times complex trusts and company structures over individual ownership is increasingly being questioned. In effect, using structures sometimes can lead to higher taxes on purchases, such as SDLT, greater annual taxes, including the ATED, and larger ongoing administration costs, including legal fees associated with maintaining, for example, trust-owned properties and yearly reporting.

Investors could in some instances become more open minded about whether individual ownership could be the preferred and more straightforward route.

That said, there isn’t a one-size-fits-all approach. Factors such as property size, the purpose of the purchase, the number of UK properties you intend to own, the intended ownership time horizon, buying with debt or not and whether there is a wider succession plan or objective all play a role in determining the optimal purchasing strategy.

With respect to succession planning and ownership structuring, using a vehicle can still be beneficial. The toolkit for succession planning can be broad, starting with a basic will, to some gifting strategies and term insurance, to possibly using different types of trusts (life interest or discretionary trusts for instance) or similar arrangements.

Additionally, if an investor’s goal is to build a small portfolio of buy to let residential properties, there is a case for the use of a corporate vehicle. Under this arrangement, corporation tax – currently 25% – would be due on rental income and gains on disposals, and costs (including mortgage interest) could be deducted more efficiently. Relief from taxes including ATED and SDLT may also be available for properties declared for commercial or third-party rental purposes. This compares favourably with personal ownership.

Moreover, investors based outside the UK should remember the non-resident landlord scheme (NRLS) can be claimed and essentially disapplies a 20% at source deduction on rental income paid to non-resident landlords. This scheme can be applied for and accessed by individuals, company directors and trustees.

Bearing in mind the changing legal and tax landscape, a horses for courses approach should be applied when looking to invest in UK residential property as the more traditional off the shelf approach is a lot less attractive and viable in today’s world.

Working with reputable partners

In light of these constant developments, structuring a UK property purchase is clearly a complex undertaking that requires careful consideration and expert advisory support. Global private banks with in-house wealth advisers are well positioned to support investors in maximising opportunities by providing valuable, informed advisory services that ensure compliance with the evolving landscape. Such a partner will work alongside clients and their advisers to fully understand the objectives of an acquisition as well as provide expertise from a structuring perspective and with invaluable insights on the UK real estate market. 

And, of course, when it comes to execution, specialist teams are at hand to provide funding solutions such as mortgages and credit lending, as required – thereby enabling holistic support for clients’ end-to-end purchasing needs. 

Wealth advisers at banks such as Standard Chartered can provide investors with valuable insight on the tax landscape, planning and succession tools, including the implications of borrowing. 

Whilst it’s clear that the UK’s resilient and vibrant property market remains a strong magnet for foreign investors, successfully navigating the complex and evolving landscape requires the support of the right banking partner and specialist advisers. With its deep understanding of the UK real estate market, Standard Chartered is well equipped to support private clients in maximising the opportunities the UK residential property market can bring. 

Please note that Standard Chartered Bank, its subsidiaries and affiliates do not provide tax or legal advice and this communication, and its content does not constitute such advice. The information provided herein is of a general nature, cannot be relied upon in any way and may be subject to change. It is recommended that you seek your own independent tax and legal advice from a qualified tax adviser or appropriately qualified professional on your specific circumstances before entering into any investment, services or product. Standard Chartered Bank accepts no responsibility and shall not be liable for any loss or damages suffered as a result of any disposal, undertaking or decision – financial or otherwise – entered into or made on the basis of the information provided herein.