CHESTERTON HUMBERTS RESEARCH BRIEF – JANUARY 2012
An Introduction to the London Residential Property Market
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CHESTERTON HUMBERTS RESEARCH BRIEF
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contents 1
INTRODUCTION
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THE LONDON RESIDENTIAL PROPERTY MARKET
Page 1
2.1 Sales market – Demand trends
Page 2
2.2 Sales market – Supply trends
Page 4
2.3 Sales market – Performance analysis
Page 5
2.4 Private rented sector overview
Page 7
2.5 Investment market overview
Page 8
2.6 Prime London residential submarket portraits
Page 9
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LEGAL OVERVIEW
Page 13
4
TAX OVERVIEW
Page 14
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KEY CONTACTS
Page 16
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An Introduction to the London Residential Property Market 1.0 – INTRODUCTION: LONDON – A CITY WITH GLOBAL PULL
“Why, Sir, you find no man, at all intellectual, who is willing to leave London. No, Sir, when a man is tired of London, he is tired of life; for there is in London all that life can afford.” – Dr. Samuel Johnson
London is one of the world’s most cosmopolitan capitals, offering a wealth of cultural and leisure experiences, it is also the world’s leading financial centre.
Many people today would no doubt concur with Dr. Johnson’s sentiments regarding London. One of the world’s most cosmopolitan capitals, offering a wealth of cultural and leisure experiences, it is also the world’s leading financial centre according to the Z/Yen Group’s March 2011 Global Financial Centres Index. Whilst nowhere in the world is immune to geopolitical risk, London offers a relatively safe
and stable environment and a society which is renowned for its tolerance of ethnic, political and religious groupings. Moreover, the UK is now the second most popular destination for international students and, according to the Higher Education Statistics Authority, foreign students account for around 23.5% of all HE students in London.
Figure 1: Top 10 London HE colleges with the highest number of foreign students (2009/10) Institution
Non-UK student nos
% non-UK students at institution
University College London
8,290
36%
The University of Greenwich
6,555
23%
University of the Arts, London
6,350
19%
London School of Economics and Political Science
6,260
65%
London Metropolitan University
6,215
26%
Imperial College of Science, Technology & Medicine
6,010
40%
King’s College London
5,805
23%
The University of Westminster
5,640
24%
Middlesex University
5,605
24%
The University of East London
5,470
20% Source: HESA
A further important factor and one which is sometimes overlooked is language: English is the lingua franca of international business and is widely spoken as a second language
on a social level which helps greatly to make London more accessible to foreigners. The UK additionally benefits from overlapping with the Asian and North American time zones.
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2.1 – AN INTERNATIONAL PROPERTY BUYER MAGNET London is an equally attractive proposition from a real estate perspective, offering a large stock of high quality properties and a long and proven track record of strong growth performance and market transparency. The legal system as it relates to property
is straightforward with clear title assured while transaction costs are relatively low by international comparison. Moreover, with careful planning, it is possible to reduce the tax burden both on acquisition and disposal of property.
Figure 2: Residential acquisition costs for resale properties London Paris
10.12% – 14.12%
Berlin
10.00% – 12.00%
Amsterdam Moscow
9.00% – 10.00% 3.70% – 7.50%
Geneva
4.00% – 5.00%
Madrid
10.00% – 12.00%
Monaco
10.00% – 12.00%
Rome
12.00% – 16.00%
New York (excludes co-ops) Note: acquisition costs exclude VAT on agents’ and legal fees
As befits a city with such multi-national diversity, overseas buyers originate from a wide range of countries.
1.50% – 5.00%
Physical accessibility is a key factor for remote owners of property. London is wellserviced by regular international flights, with a choice of four airports, and there is an extensive underground network linking the prime residential areas with the prime business, shopping and entertainment areas of the capital. A number of infrastructure improvements, most notably the Crossrail project, will further facilitate travel within the capital and are likely to enhance property values in adjacent locations. Rail access between London and key cities in the Midlands and north of England will also be improved with HS2, the recently approved high speed network which will link London with Birmingham, Leeds, Manchester, Sheffield and the East Midlands.
0.75% – 2.30% Source: Various
The increasing internationalisation of trade, investment and tourism has brought in its wake a corresponding trend in residential property investment, with London being a major beneficiary of capital inflows. This trend has been supplemented in times of financial or geo-political stress, as seen most recently in the wake of the Arab Spring uprisings and the Eurozone sovereign debt crisis, where flight capital has sought the safe haven status offered by prime London residential property. As befits a city with such multi-national diversity, overseas buyers originate from a wide range of countries. This mix of buyer nationality has varied over the years reflecting changes in their domestic countries rather than any obvious changes in the London market.
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Figure 3: Foreign buyer origin in prime London residential markets: 2008-11
Source: Various
Wealth creation among the fast-growth emerging economies has been the primary trigger for this influx of capital, which has brought generations of new money HNWIs into the aspirational realms of a luxury lifestyle of which property is a key element. Encouragingly for London, the 2011 Merrill Lynch/Cap Gemini Wealth Report states that the global HNWI population expanded - to the tune of 10.2% in terms of numbers and 11.5% in terms of net worth in 2010. The Asia Pacific region is the most dynamic and is now second behind N. America in both numeric and wealth growth terms. Among the key economic/financial drivers of overseas investment have been the liberalisation of capital controls, particularly with regard to the export of capital, major geo-political disruption and currency fluctuation. Around 30 countries, including the BRIC nations (Brazil, Russia, India, China), retain some degree of exchange
controls. Notwithstanding this, Russians, Indians and most recently Chinese buyers are prominent players in the prime London market and one wonders how much more of a force they will become when the controls are lifted completely. Capital flight – whether for geo-political or economic reasons – has been apparent most recently from various Arab nations and, within Europe, from Russia, Italy, Greece and Spain who have all viewed London property as a safe haven for at least some of their wealth. Exchange rate volatility can also have a significant influence. Against the basket of 11 currencies examined for this report Sterling depreciated by an average of 23.11% between q1 2007 and q4 2011. This effectively represents a significant discount on the purchase price of properties and greatly enhances the attractiveness of buying London property.
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Figure 4: Sterling exchange rate fluctuation against selected currencies: q1 2007-q4 2011
Since 2000, housing completions in London have been averaging just over 18,500 units per annum.
Source: Oanda
2.2 – SUPPLY CONSTRAINTS TO REMAIN AN ISSUE For many decades there has been a structural imbalance between the supply of new homes and housing demand across the UK, including London. Since 2000, housing completions in London have been averaging just over 18,500 units per annum. This compares with official estimates and projections for the period 200631 of around 34,000 new households forming every year. Even assuming completions were to reach their peak pre-recession levels of the 2000s of 24,000 per annum for the remainder of the period to 2031, this would still translate into an annual deficit of some 10,000 homes which equates to a potential shortfall of 200,000 homes over the period. This means that, barring a major catastrophe, prices will inevitably come under long term upwards pressure. In recognition of the housing supply
shortage, in 2011 the Government put out to consultation a proposal to relax planning rules in order to facilitate the change of use from commercial to residential space. We await the outcome, however Government estimates suggest that over 78,000 dwellings could be created from the 11% of commercial (B1, B2 and B8) space which is currently vacant in London. The majority of new development, however, will not be prime either in terms of quality or location. Within many of the traditional prime sub-markets new development will remain limited due to planning constraints. From an investment perspective this is no bad thing as it should help to maintain the existing environment and character which makes these locations so appealing whilst also sustaining long term property values by removing the threat of oversupply.
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Figure 5: London housing completions v new household formation
Note: 2011 completions data is annualised based on Q1-Q3 data
Source: DCLG, ONS
2.3 – LONDON MARKET PERFORMANCE CONTINUES TO LEAD THE REST OF THE COUNTRY
In the prime London boroughs of Kensington & Chelsea and Westminster, average prices rose by 5.8% and 7.1% respectively during the year to end November 2011.
As a core location, demand for properties in London is so robust that prices are sustained at a high level – according to Land Registry, on average a little over 2.1 times higher than the average for England & Wales. This situation is exacerbated, as noted above, by a shortage of housing stock which is especially apparent within the prime segment. Price growth in London has consistently outperformed the rest of the country over
time. In the year to November 2011, average house prices in London rose by 1.4% compared to a fall of 1.9% for England & Wales as a whole. In fact, every other region recorded negative growth over the period. In contrast, in the prime London boroughs of Kensington & Chelsea and Westminster, average prices rose by 5.8% and 7.1% respectively during the year to end November 2011.
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Figure 6: Average residential price growth: England & Wales vs London vs London prime boroughs (12 month; 5 year; 10 year)
Source: Land Registry
London and the South East were identified as having the highest concentration of millionaires for whom property wealth and education were cited as the most important considerations.
Moreover, the resilience of the prime locations in London is demonstrated by their performance since the recent recession. The five central London boroughs containing the majority of prime central London residential stock have all seen prices recover to exceed their pre-recession peak levels, led by Kensington & Chelsea and Westminster where average prices in November were just over 12% and 11% respectively above peak. Although price inflation slowed in the second half of last year, the prospects for continued growth in the prime locations in London are bright. The key growth drivers already referred to earlier in this report are likely to remain for some time to come and, in addition to
foreign demand, there are grounds to expect a resurgence in UK demand. Recent research from Barclays Wealth and Ledbury Research revealed that between 2008 and 2010 the UK millionaire population rose by 17% and the number of HNWIs with a net worth of £5m+ rose by 19% over the period – and this at a time when the broader economy was struggling to make headway. Their forecasts are also encouraging, pointing to a one third increase in the number of UK millionaires between 2010 and 2020. Moreover, London and the South East were identified as having the highest concentration of millionaires for whom property wealth and education were cited as the most important considerations.
Figure 7: Prime London prices as at November 2011 v. pre-recession market peak
Source: Land Registry
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2.4 – A STRONG AND EXPANDING PRIVATE RENTED SECTOR The lettings market in London has been strengthening steadily in the post-recession period. As a nation, the proportion of households living in privately rented accommodation has risen from 10% in 2000 to 15.6% in 2009 and continues to rise. In London the Mayor’s Office reports that around one in five households are currently in privately rented accommodation, with rates of private renting more than twice as high in central London as they are in the outer boroughs. Moreover, the private rented sector accounts for more than half of the home moves that take place in London each year. Many of those in rented accommodation will be “forced renters” in that they would prefer to buy but cannot afford to. However, many will be renters of choice – be it lifestyle renters, corporate tenants on fixed term contracts, students or convenience renters who are looking for short term accommodation while they await an anticipated change in their situation, e.g. they are financially able to buy but are still looking for the right property or perhaps awaiting a job relocation. The presence of foreign renters in the prime locations to a large extent mirrors that of the sales sector, with corporate executives and non-EU students (who can have substantial budgets) prominent. The market is currently characterised by a high proportion of renewals which benefits tenants in a market where it can be difficult to find good rented
accommodation as well as landlords in terms of continuity of income and reduced void periods. Average private sector rents in London reached their highest ever level in December 2011 to stand at £1,023 per month according to the LSL Index and are now nearly 44% higher than average rents in England & Wales. Average prime rents in London are considerably higher and are in excess of £1,000 per week. The generally limited availability of prime properties, especially at the smaller apartment end of the market where demand is strongest, exerted strong upward pressure on rents during 2011 in the order of 7.7% in the first three quarters. Looking ahead, the lettings market is likely to receive a considerable short term boost from London’s hosting of the Olympic Games. The organisers are expecting ticket sales of 8.8 million for the Olympics and a further 2 million for the Paralympics, 71% of which will be at London venues. A breakdown of the anticipated origin of ticket holders reveals that around 25% are expected to come from outside the UK and a further 42% from outside London. This translates into a potential 1,917,000 visitors from outside the UK attending London venue events and it is likely that a percentage of those attending London events from the more distant parts of the UK may well require temporary accommodation.
Figure 8: Residential rental growth: London average v selected London prime submarkets January-September 2011
Looking ahead, the lettings market is likely to receive a considerable short term boost from London’s hosting of the Olympic Games.
Source: Chesterton Humberts Research
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2.5 – THE INVESTMENT MARKET IS HOTTING UP Residential property is an acknowledged portfolio balancer offering diversification of risk and enhanced returns. In the UK, over five and 10 year periods residential has outperformed
commercial property, equities and gilts with regard to total returns in nominal terms and has comfortably outpaced inflation. It has also been far less volatile than equities.
Figure 9: Nominal total returns annualised (ungeared) - all time periods are to end 2010
Note: 10 yr Gold return data is for 7 yrs annualised
The residential investment market in London is highly fragmented and is dominated by small private buy-to-let landlords whose typical portfolio size is less than 10 properties, and a small number of large landed estates. The institutional investment community has for the most part steered clear of the residential sector, preferring to hold its direct property allocation in commercial premises. However, the past 18 months has seen a significant increase in residential investment from UK institutions in response to the strengthening of the private rented sector. Also spurred by the strong recent performance of the lettings market, the BTL (Buy-to-Let) sector is expanding as evidenced by BTL mortgage lending in q3 2011 which was the highest recorded in both volume and value terms since q4 2008.
Sources: IPD; Standard & Poor’s
The shortage of available rental stock is triggering growing interest in the build-to-let concept, the most prominent recent example of which was the announcement of a joint venture between French developer Bouygues and the UK’s largest listed residential landlord, Grainger, to set up a build-to-let fund which aims to deliver in excess of 1,000 units in London and the South East. Interest from international investors is also increasing. Swedish company Akelius recently announced its intention to acquire a reported 10,000 unit rental portfolio in and around the London area while US investor Round Hill Capital is rumoured to be close to acquiring an upmarket student accommodation portfolio from Blackstone in a deal thought to be worth around £400m.
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Figure 10: Q3 2011 prime gross yield comparison: London versus selected international cities
Note: yields are based on single unit transactions and do not refer to block or portfolio deals.
Source: Chesterton Humberts Research
2.6 – PRIME CENTRAL LONDON SUB-MARKET PORTRAITS MAYFAIR Bordered by Hyde Park to the west, Oxford Street to the north, Piccadilly and Green Park to the south and Regent Street to the east, Mayfair is one of the most exclusive neighbourhoods in London. The area also contains the renowned shopping district of Bond Street, Selfridges department store and Savile Row, plus luxury hotels such as the Dorchester, the Connaught and Claridge’s. Most of Mayfair was first developed between the mid 17th century and the mid 18th century as a fashionable residential district and it remains characterised by elegant period buildings interspersed with secluded public gardens and squares. It additionally benefits from its central location in the heart of the West End.
In recent times, sales have been dominated by foreign HNWIs, notably from Russia and the Middle East but also increasingly from China and India. Eurozone buyers are also present with Greeks being prominent over the past year. In the ultra-prime segment, approximately 75% of sales are currently accounted for by foreign purchasers which adds to Mayfair’s already multi-national feel. Average capital values range from £1,500 / sqft up to around £3,500 / sqft. Entry level prices are around £700,000 for a 1-bed apartment rising to around £3.5m+ for quality 3-bed apartments/houses. High quality 4-bed houses and apartments typically range between £4m-£5m.
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Buyer demand is strong and originates mainly from overseas, with Middle Eastern and Eastern European purchasers prominent.
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KNIGHTSBRIDGE & BELGRAVIA
KENSINGTON
Although two separate districts, Knightsbridge and Belgravia are adjacent to one another and share many characteristics. Both fall within two London boroughs – Westminster and Kensington & Chelsea – and both are noted for their exclusive and highly priced residential stock, much of which comprises elegant period terraces with white stucco houses.
Kensington is a very affluent area and contains some of London’s most expensive streets and garden squares. The majority of the housing stock is low-rise and comprises Victorian and Georgian terraced houses and mansion blocks which have often been subdivided into flats.
Belgravia lies to the south-west of Buckingham Palace. Developed from the 1820s it is focused on several desirable enclaves including Belgrave Square, Eaton Square, Lowndes Square, Wilton Crescent and Upper Belgrave Street. It is a relatively quiet and safe district and is home to many embassies. Knightsbridge lies to the west of Belgravia and comprises the area south of Hyde Park, east of the South Kensington museums area and west of Sloane Street. Not only an ultra-expensive residential area, Knightsbridge is renowned for its upmarket retail outlets including Harrods and Harvey Nichols, and is home to many flagship stores of international fashion houses. Both Knightsbridge and Belgravia are largely made up of strictly controlled conservation areas and development land is difficult to find. Stock shortages, especially for flats, combined with sustained strong buyer demand have resulted in prices being maintained at a very high level. Quality flats range typically between £2,000 / sqft up to £5,000 / sqft and the development at One Hyde Park is rumoured to have achieved even higher prices. Buyer demand is strong and originates mainly from overseas, with Middle Eastern and Eastern European purchasers prominent. Flats are generally preferred although trophy properties of any description are also highly sought after. At this end of the market, a high proportion of acquisitions are made via offshore corporate vehicles both by foreign and UK high net-worth individuals.
Notable attractions in Kensington include the Kensington Palace State Apartments and Kensington Gardens, a former royal park now open to the public. Kensington High Street contains many major retail names and is very busy while Kensington Church Street is more village-like with antique shops, cafés and restaurants. Overseas purchasers dominate the market and account for around two thirds of all sales. Sales mainly involve apartments and although family homes generally sell easily, there are far fewer transactions in this segment of the market. There are some important good quality developments under way which will help to ease the stock shortages and should also provide some uplift to prices in the surrounding areas. These include St. Edward’s luxury apartment scheme at 375 Kensington High Street (due for completion in 2014) and Sir Robert McAlpine’s De Vere Gardens development located close to Kensington Palace which will deliver 97 apartments. Average capital values for good quality properties currently range between £900 / sqft up to £2,500 / sqft.
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London’s Docklands cover a wide area encompassing four boroughs (Southwark, Tower Hamlets, Newham and Greenwich) and represent a major long term redevelopment initiative commenced in the 1980s.
SOUTH KENSINGTON & CHELSEA Distinct from Kensington, the South Kensington & Chelsea submarkets adjoin one another and are both very affluent areas offering an attractive and safe urban environment in south west central London. South Kensington hosts some of London’s largest and finest museums (Natural History, Science and the Victoria & Albert) and is also home to the Imperial College, Royal College of Music and Royal College of Art, as well as the Royal Albert Hall. Although South Kensington has many mews houses, some of which are located within private ‘gated’ developments, it is flats which comprise the majority of the housing stock. Situated to the south of South Kensington, Chelsea is an equally affluent area which additionally benefits from extensive river frontage. Originally a somewhat bohemian location, the area has uplifted considerably over the past few decades and is famous for the Chelsea Flower Show, the King’s Road and Sloane Street shops and being home to Chelsea Football Club.
Most of the new Docklands’ housing stock is in the form of apartments and benefits from views of either the River Thames or of the characteristic small docks which are set back slightly from the river.
Average prices currently range from around £1,100 / sqft for a 1-2 bed apartment up to £2,500 / sqft for a 3-4 bed+ family home depending on address, unexpired lease length etc. Peak prices in the prime locations can go as high as £3,000-£3,500 / sqft. DOCKLANDS London’s Docklands cover a wide area encompassing four boroughs (Southwark, Tower Hamlets, Newham and Greenwich) and represent a major long term redevelopment initiative commenced in the 1980s. Over the past three decades the area has been transformed from a landscape of redundant
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dockyards and run down housing into a major business and financial centre focussed around Canary Wharf, with modern housing developments – some of which can genuinely be considered as prime. Most of the new housing stock is in the form of apartments and benefits from views of either the River Thames or of the characteristic small docks which are set back slightly from the river. The area is also well-served by public transport links to the centre of London and even has its own airport (London City Airport). Although buyer demand softened over the past couple of months, 2011 was a record year for sales transactions. Around 60% of buyers were foreign, with Chinese (including Hong Kong) being prominent but Malaysians and Singaporeans also active. Demand is currently driven by owner-occupiers typically working in the financial services sector and investors who have returned in strength to take advantage of the robust lettings market. Requirements are almost entirely for apartments, with investors in particular targeting studios and 1-bed flats and in many cases happy to buy off-plan. Prices for prime properties are now close to their pre-recession peak levels although they are still considerably below those in prime central London. Average prices for good quality apartments range from £250,000 for studios, £350,000-£400,000 for 1-bed and £500,000 up to £750,000 for 2-bed flats. Larger 3-bed units are typically penthouses with lower transaction levels, ranging between £850,000-£2.25m. On a pounds-persqft basis, values range between £400-£900.
KNIGHTSBRIDGE
HYDE PARK
CHELSEA
SOUTH KENSINGTON
KENSINGTON
ST JOHN’S WOOD
Figure 11: Selected prime London residential locations.
BELGRAVIA
GREEN PARK
MAYFAIR
REGENT’S PARK
REGENT’S PARK
RICHMOND
St Pancras NOTTING HILL
THAM ES R I V E R
Barbican
HAMPSTEAD
To Canary Wharf
CANARY WHARF
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3.0 – LEGAL OVERVIEW
The UK legal system as it relates to property is wellestablished and transparent, offering buyers clear title via a Land Registry which is accessible to the public.
3.1 – THE PURCHASE PROCESS The UK legal system as it relates to property is well-established and transparent, offering buyers clear title via a Land Registry which is accessible to the public. The process of buying a property – conveyancing – is straightforward and is best handled by a solicitor appointed by the buyer. It involves the following stages: • Examination of the title deeds to confirm ownership and any possible complications relating to the documents • Ensuring clear title will be obtained by the purchaser • Carrying out local searches to find out whether there are any planning issues which may affect the property • Checking whether there are any local developments including infrastructure changes which will affect the value of the property • Ensuring all necessary certificates/ paperwork for alterations/improvements to the property are available and valid and
confirming that drains are maintained by the local authority • Negotiating the terms and conditions of the sale with the seller’s solicitor • Recording the change of title with the Land Registry including any mortgage deeds, where applicable Upon completion of the searches, contracts will be drawn up by both parties’ solicitors and exchanged between buyer and seller. At this point the buyer will be required to pay a deposit (typically 10% of the agreed purchase price) and both parties will agree a completion date when the actual sale will be confirmed and the balance of the purchase price will be paid – i.e. received by the seller’s bank. The buyer is now legally committed to purchase and if he pulls out he will forfeit his deposit. The time it takes to complete the process can vary considerably depending mainly on the speed of response to the various searches and on the length of the chain involved. 10 weeks is a good average to allow.
3.2 – OWNERSHIP TYPES There are three types of property ownership in the UK.
There are three types of property ownership in the UK – freehold, leasehold and commonhold.
FREEHOLD – Freehold gives the purchaser absolute ownership of the land and any buildings on it for an unlimited period of time. Owners have the right to do as they like with their home, subject to any legal or planning restrictions which may apply. As such, it is usually regarded as the most desirable form of ownership.
LEASEHOLD – Leasehold ownership conveys upon the owner the right to own a property which is situated on land owned by a third party via a lease. Most commonly, this form of ownership applies to apartments within a building which is also owned by the landowner (landlord) on a freehold basis. The conditions of a lease are agreed between the landlord and the lessee as is the length of the lease which typically runs for 99 years but can be up to 999 years. As the length of the lease shortens so its value also reduces and so a lessee may apply for an extension from the landlord. The lessee will be obliged to pay an annual ground rent (usually not more than a few hundred pounds) and usually also an annual service charge which will go towards the maintenance, repair and insurance of the exterior and common parts of the property and its grounds. This can run into several thousands of pounds per annum depending on the size of the overall building.
COMMONHOLD – Commonhold allows freehold ownership of individual flats, houses and non-residential units within a building or an estate. Ownership is not limited by time as it is with a lease. The rest of the building or estate forming the commonhold is owned and managed jointly by the flat or unit-holders, through a commonhold association. There are, however, a number of qualifying conditions which lessees must fulfil before this can happen.
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4.0 – TAX OVERVIEW
For non residents the income tax liability is limited to the basic rate of tax, currently 20%.
RESIDENTIAL LAND / PROPERTY STAMP DUTY LAND TAX RATES AND THRESHOLDS Purchase price/lease premium or transfer
Normal SDLT rate
SDLT rate for first-time buyers
Up to £125,000
Zero
Zero
Over £125,000 to £250,000
1%
Zero
Over £250,000 to £500,000
3%
3%
Over £500,000 to £1 million
4%
4%
Over £1 million
5%
5%
4.1 – STAMP DUTY LAND TAX (“SDLT”) SDLT is normally payable on the acquisition of residential land or property in the UK at rates ranging from 0% to 5%, with residential properties costing less than £125,000, (£250,000 for first time buyers) being taxed at 0%. 4.2 – INCOME TAX Any profits made from letting property situated in the UK are taxable in the UK at income tax rates up to 50%. Rental profit is calculated based on the gross income less allowable expenses, such as finance costs incurred on purchasing or improving the property, letting agent’s commissions and repairs. For non residents the income tax liability is limited to the basic rate of tax, currently 20%. Where the landlord is not resident in the UK, the tenant, or generally the letting agent, is required to withhold tax from the payment
of rent to the landlord and pay this over to HM Revenue & Customs (“HMRC”). This withholding obligation may be avoided if the landlord has successfully applied to HMRC for gross payment status under the NonResident Landlord Scheme. The principal condition of being granted gross payment status is that the landlord agrees to file an income tax return declaring his rental profits and pay income tax on those rental profits. 4.3 – CAPITAL GAINS TAX The gain arising on the sale of an individual’s Principal Private Residence is normally exempt from UK Capital Gains Tax. Otherwise the Capital Gains Tax rates on gains arising on the sale of non trade property and other capital assets is 28% (or 18% for basic rate taxpayers). Non-residents are normally exempt from UK Capital Gains Tax unless the gain arises in a period of temporary non residence.
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4.4 – INHERITANCE TAX UK domiciled individuals are subject to UK Inheritance Tax on their worldwide assets on death and potentially also on lifetime gifts. For non-UK domiciled individuals Inheritance Tax is due on UK assets only, such as residential property. Subject to various reliefs, Inheritance Tax on a deceased’s estate is currently charged at 0% on the first £325,000 with the excess charged at 40%. Non-domiciled individuals who have been resident in the UK for 17 out of the previous 20 tax years are deemed to be domiciled in the UK for Inheritance Tax purposes. 4.5 – UK RESIDENCE AND DOMICILE The UK tax rules on residence and domicile are complex and if you are uncertain of your position you must consult your own adviser.
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4.6 – DOUBLE TAXATION AGREEMENTS If the landlord is resident in another jurisdiction rental profits may also be subject to tax in another tax jurisdiction. In order to avoid double taxation an extensive range of double taxation treaties have been negotiated by the UK Government. Relief for UK taxes paid may be available against overseas taxes paid on those same profits under the terms of these treaties or otherwise unilaterally. 4.7 – OVERSEAS BUYERS With careful planning, foreign buyers purchasing residential property in the UK can currently benefit from favourable tax treatment. Foreign investors purchasing property via an offshore special purpose vehicle may be able to mitigate the impact on them of UK taxes such as Stamp Duty Land Tax, Inheritance Tax and Capital Gains Tax. A purchaser must seek tax advice from their own advisers.
TAXATION
The Tax Overview is a brief outline of some UK taxes which may affect an individual property purchaser. It is not intended to provide a complete analysis of the UK tax consequences of purchasing, holding and selling UK property assets. Any prospective purchaser should consult their own tax advisers concerning the tax consequences of their own particular circumstances. In no event shall Chesterton Global Limited and/or its agents be liable to any party for damages of any kind whatsoever arising out of the use of the information contained herein.
The tax information contained above is of a general nature for guidance purposes only and is not a substitute for professional advice. Before acting, or refraining from acting, you are recommended to obtain bespoke tax advice in relation to your personal circumstances from a UK tax adviser. Accordingly, Chesterton Global Limited and/or its agents cannot be held responsible for any loss as a result of acting or refraining from acting in relation to the information given.
CHESTERTON HUMBERTS RESEARCH BRIEF
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4.0 – KEY CONTACTS Chesterton Humberts is a multi-disciplinary property business covering Residential Sales & Lettings, Estate/Property Management, International, Rural and Commercial with 50 offices nationally and additional international offices in the following countries: Australia, Barbados, France, Gibraltar, Italy, Russia, Singapore, South Africa, Spain, Abu Dhabi, Dubai Should you have any questions regarding this report or wish for any other information concerning the UK residential property market please do not hesitate to contact any of the names listed below. Richard Davies Head of Residential Lettings T: +44 (0)20 3040 8244 E: richard.davies@chestertonhumberts.com Patricia Farley Residential Area Manager London Central T: +44 (0)20 7589 1234 E: patricia.farley@farleysres.com Tony Gambrill Residential Area Manager London North East T: +44 (0)20 7432 1922 E: tony.gambrill@chestertonhumberts.com Amy Smith Residential Area Manager London South West T: +44 (0)20 8104 0580 E: amy.smith@chestertonhumberts.com Nick Underhill Head of International Residential Development T: +44 (0)20 3040 8354 E: nick.underhill@chestertonhumberts.com David Goldberg Head of Estate Management T: +44 (0)20 3040 8711 E: david.goldberg@chestertonhumberts.com Julia Lickley Director, Property Management T: +44 (0)20 7298 5929 E: julia.lickley@chestertonhumberts.com Nicholas Barnes Head of Research T: +44 (0)20 3040 8406 E: nicholas.barnes@chestertonhumberts.com
The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. January 2012.