How coronavirus is threatening the UK’s second home market me

A month ago, Alice from Haslemere, Surrey, was getting ready to drive to her holiday home in Cornwall, a five-bedroom property in Padstow, to prepare it for the busy summer season. It was just before March 23, the date the UK went into lockdown to slow the spread of coronavirus. But after a call to her Padstow neighbour, another second-home owner who was already there and self-isolating, she changed her mind, fearful of the welcome she might receive. Alice, not her real name, says her neighbour, a scientist, had suspected a lockdown was looming and was already taking precautions against a possible backlash from locals. “She keeps her car off the street in fear of [malicious] damage and goes for walks late in the day to keep her head down.” Since the outbreak of Covid-19, tensions have increased in communities across the UK where there is a high proportion of second homes, including the West Country, the Cotswolds, Scotland and Wales. Some blame those waiting out lockdown in their second homes for bringing the virus, infecting the local population and putting additional pressure on local medical services. An app developed at King’s College London, with the start-up Zoe Global and others, tracks self-reported Covid-19 symptoms across the UK. After the lockdown was imposed, it found that second-home hotspots had higher incidences of the virus than surrounding areas, fuelling concern that second-homers could be spreading it. In the past two weeks, the higher rates of infection in some holiday home hotspots have begun to die down. “This is speculation,” says Dr Tim Spector, lead researcher, “but the reduction might be explained by Londoners moving to second homes, reporting symptoms, then staying in lockdown. Only if they went wild and spread it around would you see these areas as staying higher.”

If he is right, many second-home owners are respecting social-distancing measures in their host communities. But the crisis is straining an already fractious relationship. Many blames second homers for driving up house prices in their areas and increasing their local economies’ reliance on tourism. At the same time, many businesses have become dependent on high-spending tourists and second-home owners. In 2019, the average property price in the town of Salcombe in Devon was nearly £706,840, according to Hamptons International, up 33 per cent in the past 10 years. Over the same time, average prices in the Cotswolds market town of Chipping Norton have risen 52 per cent to £427,740. In Padstow, a fishing village on the Cornish coast, prices have jumped 29 per cent in the past five years to an average of £466,540. In nearby Rock, the average is £477,940 — about £6,000 more expensive than London’s.

In some areas, bitter feelings have worsened with the accusation that some second-home owners have been exploiting a loophole to claim grants from the government. Councillor Judy Pearce, leader of South Hams District Council, in Devon, says locals are fed up with owners who say their second homes are available for rent for 140 nights a year just to avoid paying council tax, and who may now be entitled to up to £10,000 each under the emergency small business grants fund, which was intended to help small businesses through the coronavirus crisis. Meanwhile, struggling local small traders who do not have premises and pay business rates cannot apply for a grant. “A certain coterie of owners who have a sense of entitlement will always get up the noses of local people, but this grant is a huge issue,” Pearce says.

Could the pandemic spell the end of the social acceptability of owning a second home in the UK? Many thinks not. Estate agents are keen to point out what they see as the upsides to living in areas with high numbers of second homes. “Locals also benefit from the arrival of businesses — such as Daylesford Organic [a farm shop in Hingham] — that are the result of the Cotswolds becoming more aspirational for second-home owners,” says Harry Gladwin of The Buying Solution, a property consultancy. “For locals, it’s a case of ‘can’t live with them, can’t live without them,’” says Chris Clifford of Savills in Cornwall. Some locals do not want them at all. Between 1979 and 1994, the Welsh nationalist group Meibion Glyndwr set fire to 228 English-owned second homes in Powys, Wales. Despite that, the area remains popular with second-home owners. But tensions have resurfaced, says Angela Steatham from Llanrhaeadr Ym Mochnant, in north Powys.

 

London’s skyscraper boom runs out of steam

London’s decade-long tower building boom is slowing, with the coronavirus pandemic expected to act as a further drag on new projects already checked by the fallout from Brexit and the Grenfell fire. In 2019, a record 60 towers were completed, more than the combined total of the previous two years and well ahead of the earlier high of 26 set in 2016, according to a study published on Tuesday by think-tank New London Architecture and estate agency Knight Frank. The overall trend shows a gradual acceleration in the building of new high rises from 2009, until the sharp rise last year. Annual completions were up 20-fold in 2019 over the number a decade ago. But last year’s total is unlikely to be surpassed soon, according to the authors of the report, with work on new projects slowing and many building sites being forced to shut down because of the pandemic. Work started on just 30 high rises last year, the lowest number of constructions starts since 2015.

This year may mark the first drop in the growth of the development of tall buildings in London for a decade,” said Peter Murray, chairman of NLA and one of the authors of the report, who warned that the impact of the coronavirus outbreak would further hamper construction. London’s skyline has been dramatically reshaped since 2009, with 214 blocks of 20 storeys or more appearing. The handful of skyscrapers which once pockmarked London have proliferated into distinct clusters across the capital. The building boom has transformed neighbourhoods from Canary Wharf, the city’s second financial centre, in the east, to the suburb of Croydon in the south. New planning applications peaked in 2015, before falling sharply in 2016. The record number of applications are “a legacy of Boris Johnson and some of his key advisers at the time,” said Stuart Baillie, head of town planning at Knight Frank, referring to the UK prime minister’s time as mayor of London.  City Hall’s incumbent, Sadiq Khan, has been more focused on increasing the number of affordable homes, he added. The glut of applications towards the end of Mr Johnson’s term led to a boost in new starts a year later, and the uptick in completions up to 2019. But since 2015, the number of annual applications has fallen by more than a third. As well as mayoral policy, the Brexit vote in 2016 and the three years of political wrangling that followed has dented confidence in the London market. The Grenfell tower fire in June 2017, which killed 72 people, led to intense scrutiny of the safety of high-rise buildings and calls to strengthen fire regulations.

As developers of tower blocks face greater hurdles, Mr Khan’s ambition to build 65,000 new homes a year, from a base of about half that, risks slipping further out of reach.  Many local authorities — particularly those in outer boroughs, which now account for more than a third of all planned towers — regard tall buildings as critical in meeting ambitious housing targets. Nearly 90 per cent of 2019’s completed towers were residential. “The housing supply issues in London, in the context of high land values, mean that height is going to remain part of the equation,” said Mr Baillie. Overall, 16,470 new homes were built in towers last year, almost a quarter of them defined as affordable. Without more towers, said Mr Baillie, “I can’t see London getting close to its housing target.”

Home improvers hit by remortgage problems

Homeowners who have often spent tens of thousands of pounds on loft conversions, basement dig-outs or kitchen extensions are being locked out of remortgage deals that reflect the higher value of their property, following the ban on physical surveys.

Major improvements can increase the value of a property, boosting the level of equity for mortgaged homeowners who may then refinance on more attractive terms, or take out a larger mortgage based on the higher value of the property.  However, the government last month asked buyers and sellers to delay transactions while coronavirus restrictions were in place, and barred surveyors, as well as estate agents and prospective buyers, from visiting occupied homes — a measure that has hit the mortgaging options available to home improvers. “If you have significantly improved a property and created value, the only way a bank would be prepared to lend on that new value would be if they could go and have a look,” said Simon Gammon, managing partner of mortgage broker Knight Frank Finance. “In lower value properties they might accept a ‘drive-by’ valuation to verify that someone has gone into the roof, but it’s more likely a physical internal inspection would be required to establish the new square footage on which they are lending.”  As a result, he said, those who have improved their home and now want to get a better rate are “potentially stuck”.

For mortgages which are a smaller proportion of the overall property value, lenders and surveyors have in the past been willing to use “desktop” valuations or automated valuation models (AVMs). Rather than sending round a surveyor to inspect a property, these take previous values and price changes in comparable properties in the same location to assess a home’s current value.  Coronavirus and your money ‘Chancellor must iron out problems for limited company directors’ Coronavirus: Your questions answered as furlough scheme opens Where to look for the market rebound Since the Covid-19 restrictions came into force, lenders have relaxed the loan-to-value limits under which they are willing to use these automated options, to allow more loans to go ahead.

Nationwide, for instance, said on Tuesday it would be able to use these alternatives for mortgage valuations up to 85 per cent loan-to-value.  Yet brokers said surveyors and lenders were still unwilling to use such data-driven models to sign off big changes in value driven by building work without “eyes on”.  Aaron Strutt, product director at mortgage broker Trinity Financial, said one client had spent £100,000 refurbishing a property and was due to remortgage in May after coming to the end of their fixed-rate deal. A combination of the surveyor problem and changes to the way banks have reduced their income-related criteria meant they could not refinance to account for the value they had added.  “For the moment, they will need to swap to an exit penalty-free tracker rate to avoid an expensive standard variable rate with their existing lender and wait for the market to improve,” Mr Strutt said. Substantial home improvements can raise the value of a property in excess of the cost of the work, which may easily run into six-figure sums for ambitious structural work such as a basement dig down.

A loft conversion on average costs a more modest £23,000 across the UK, according to a 2019 survey by Hargreaves Lansdown, though the bill is more likely to start at around £40,000 in London.  Nigel Bedford, senior partner at broker Largemortgageloans.com, cited a client who had spent about £260,000 on a basement dugout, loft conversion and large rear extension, having bought the property in north London for £890,000 eight years ago. The client, who aimed to take out a larger mortgage, estimated the property’s new value at £1.75m but had to settle for a “straight swap” remortgage — albeit at a better rate — on a lower value of £1.48m in the absence of a physical survey.  “They have added lots of value, but clearly none of that is going to show up on an automated valuation model,” Mr Bedford said.  While lenders have been relaxing their constraints on the use of non-physical valuations to assess properties, higher value properties may not qualify for these, since surveying firms often place a cap on the property value beyond which they will consider an automated valuation.

Adrian Anderson, director of mortgage broker Anderson Harris, said that as a rule of thumb the cut-off point was about £2m, though some lenders are capping at £500,000 and others such as NatWest will now entertain automated valuations for homes worth up to £3m. This means that someone borrowing £500,000 to buy a £2m home (a 25 per cent LTV mortgage) might be able to borrow since an automated valuation. But someone borrowing the same sum on a £4m home — at 12.5 per cent LTV — would require an in-person survey. “There’s an element of frustration because from the lender’s perspective the risk is less,” he said. Another issue raised by Mr Anderson was that lenders often refused to consider an automated or desktop valuation on flats rather than houses, affecting high-density areas in cities such as London, where flats account for a higher proportion of housing stock. “Banks are much more conservative about apartments than houses. There’s a perceived added risk,” he said.

 

Not to move

The Government has urged people not to move to a new house to try to limit the spread of coronavirus across the UK.

Buyers and renters should delay moving while emergency stay-at-home measures are in place, it said.

Its comments come amid reports banks are pressing for a full suspension of the UK housing market.

Lenders are concerned about the effect of the pandemic on valuations, according to the Financial Times.

Banks are also worried about granting mortgages during this period of extreme economic uncertainty, the FT said.

The Government said that while there “is no need to pull out of transactions”, “we all need to ensure we are following guidance to stay at home and away from others at all times”. Real estate investing.

 

If a property is vacant, people can continue with the transaction, although they must ensure they are following guidelines with regards to home removals. Investment opportunities.

 

But if the house is occupied “we encourage all parties to do all they can to amicably agree alternative dates to move”. Investment property.

 

Property listings websites say that interest in moving home has slumped amid the coronavirus outbreak.

Zoopla said demand in the week to 22 March fell 40% from the week before and it predicted housing transactions would drop by up to 60% over the next three months.

Meanwhile, it said a “rapidly increasing” proportion of sales were falling through, as would-be buyers “reassess whether to make a big financial decision in these shifting times”.

Geoff Grant, aged 60 and his wife Tanya, aged 52, from Dorset had been hoping to move to a new house on 9 April.

However, Mr Grant is stuck in South Africa and the couple face having to pay rent to two landlords if their removal firm changes its mind about helping them move.

Mr Grant says there is already an overlap on the Leases – the agreement for the new rental property begins on 1 April while the existing one ends on 9 April.

“If the move is delayed, we’ll have to negotiate with two landlords,” he says.

As it stands, the removal company the couple is using, said at the beginning of the week it will still do the job. And while Mr Grant is stuck in South Africa on business, luckily his 20-year-old daughter is home from university to help lug boxes – at a six-foot distance from the removers of course.

Rival website Rightmove also said the slowdown in the UK housing market had been “significant”.

“The number of property transactions failing to complete in recent days and likely changes in tenant behaviour following the announcement of the renters’ protections by the Government may put further pressure on estate and lettings agents,” it said, referring to the recent ban on evictions.

 

The real estate trends and hot-pick assets for investors in 2020

real-estate-trends-2020

Best investments

Income returns will remain the overarching theme for real estate investment in 2020. Offices in core city markets will be a focus for investors, but with opportunities scarce and yields at record lows, many will be forced to look elsewhere. Alternatives, such as student housing, multi-family, co-living and data centres are increasingly becoming mainstream.

These trends are set against a muted global economic outlook and heightened political uncertainty. The IMF forecasts a modest pick-up in global growth to 3.4% in 2020, up from 3% in 2019. The US/China trade war remains a serious drag on the global economy. World trade volumes fell by 1.1% year on year to Q3 2019, the worst result since 2009. Indicators show that it will stabilise in 2020, but the environment remains fragile.

Global growth 2017-2020

Source: IMF

Inspite of this, investor appetite for real estate shows no sign of abating. Global volumes in 2019 finished down on the record levels of 2018 but were still the second highest on record. This fall was not for a lack of capital, rather a lack of assets in the market. real estate investment London

Where to invest in London

By sector, offices and senior housing had the biggest growth in global investment volumes during 2019, both increasing by 6%. Industrial saw a more modest growth of 3%, but the sector is now the third largest following a 21% fall in retail investment. where to invest in property in London.

If some of the uncertainty is removed from the market, for example an orderly Brexit or an easing of global trade tensions, there is pent-up demand waiting to invest in real estate – in many cases beyond the core assets. The comparatively attractive returns real estate can offer, as interest rates look set to remain lower for longer, will continue to drive the market.

Global themes for 2020

No single cycle
Inspite of today’s globalised and highly connected world, it’s notable that different cities, countries and sectors are still at different points in the cycle.

Ongoing search for income
Supported by very low interest rates and a large volume of capital seeking income returns, real estate will remain a highly attractive asset class on a global stage compared to bonds.

Don’t ignore the macro environment
Micro markets still matter, but in today’s geopolitical environment, the macro environment can’t be ignored. Trade wars, populist government agendas and climate risk are all influencing factors when it comes to investment decisions.

Finding the right stock
Offices are the top pick for core from all our regions. The challenge will be finding the investable stock. A lack of liquidity is one test, particularly in Asia, where investors are holding for longer.

Niches go mainstream
Emerging niches such as residential and data centres are now entering the mainstream in some markets.

London Property Investment

If you’re a property investor, London property investment opportunities should not be missed. Investors from around the globe continue to invest in London. When it comes to making a lucrative property investment, the London market has a lot to offer as an investment platform. Many major cities have investment properties in London that are known for their high rental yields and capital growth potential,

London investment properties have a consistent track record for high levels of capital growth, with a thriving buy-to-let investment market. Renting has become a lot more popular in the UK, with more people living in rental accommodation than buying their own home. This is partly down to the difficulty many young people now face in purchasing their own property. Many UK millennials are struggling to get onto the property ladder, increasing the demand for high-quality rental properties in London.

For buy to let investors, a high level of demand for property is one of the most crucial elements to ensure a successful venture. The type of investment property that a London property investor is involved with certainly comes with plenty of demand, with high levels of demand in London.   The UK Government is paying attention to this demand for property, with plans to build 300,000 new homes a year.

Off Plan property could rise in value by the time the development is finished and ready for tenancy. This is an important element to consider when selecting your London investment property, as the higher the capital growth, the better returns you can expect when you decide to sell the property.

One of the final things you should think about before selecting an investment property for sale in the UK is whether the property will appeal to your ideal tenant. Establish your ideal target tenant before making your first investment as this is likely to dictate the type of property you buy. If you want to rent your buy to let property to a student, for example, look for areas with high student populations. Some of the biggest student cities include Liverpool and Manchester, which is part of the reason why these Northern cities were considered the best places to invest in property in the UK for 2018. These cities are also amongst some of the best locations for investment properties in the UK if you want to buy residential property and attract young professional tenants.

Consider whether the property you’re investing in will appeal to your target tenant and meet their requirements. If student property investment is an avenue you hope to pursue, spend some time getting into the mindset of student tenants. Today’s UK students now value certain qualities in their accommodation. Instead of settling in the first property they find, whether that be a shared house or cramped university halls, students are now seeking out accommodation that better suits their tastes and lifestyles.

Select Oxford Acquisitions to Invest for the best property investment in London

With a proven track record for success and thorough due diligence, high client satisfaction, and the ability to offer the best properties on the market, we’re proud to be one of the best property investment companies for London investment properties. Along with the ability to offer each property investor a high-quality property in a desirable location, we’re also capable of securing assured rental yields for our clients.

We’re the best property investment company in London, offering opportunities in property hotspots for investments. If you’re interested in making an investment with Oxford Acquisitions, contact us today. Our dedicated team of property professionals will offer you advice and guidance with your property investment. Over the years, we’ve worked hard to find opportunities in the best places to invest in property in London – let’s talk!

Invest in London Property?

London has long been considered the place to be to invest in property. England’s Capital city sees flocks of tourists, overseas workers, and investors heading to London year after year to take advantage of the sights, attractions and opportunities that are available. Those considering their first investment in the UK might automatically look towards London property investment, but is this City really the buy to let investment hotspot that some of us might think it is?

Is property in London a good investment?

London residential property investment can be a worthwhile venture if you are selective with the areas you choose to invest in. If not, you could find that your investment suffers due to low rental yields, dwindling demand, and slow property price growth in many parts of London. Consequently, selecting the best areas to invest in London is important. Oxford Acquisitions as an investment property specialist can help you.

High property prices

The Office for National Statistics reports that the average London home cost £115,000 twenty years ago, growing to an average of £351,000 in 2008 and standing at around £671,412 by 2018. Capital appreciation had long been the main force driving people to buy London investment properties, with the potential for London properties to grow in value over recent years. If an investor had purchased a London property for £200,000 in 2007, near Kings Cross station, for example, this would now be worth over £300,000.

Rental yields

However, this growth in the investment in London property prices comes with a decline in rental prices. In February 2017, the average rental property in London was let for around £1,280, presenting a one per cent decrease year on year. High property prices and lower rent means one thing for investors — some disappointing average rental yields. Those investing in off-plan property in London can expect yields at an average of 3.7 percent, Oxford Acquisitions can help to get a better yield.

Potential for future growth – where to invest in London

Several areas in London are expected to experience property growth by 2020. Whitechapel, Canary Wharf, Earls Court, Old Oak Park and Croydon are all predicted to make their mark on the property map and make perfect choices if you’re wondering where to invest in London property. This is due to several regeneration projects set in place for the City, with plans for improved transport links and the creation of thousands of new homes and jobs. Select London investment properties have been predicted to reach rental yields as high as six per cent by 2020.

Where to invest in London?

If you’re looking for the best area to invest in London property, consider areas like Ilford, Romford, Barking, Dagenham, Hayes, Harlington, and Thamesmead. This is because these areas currently offer average rental yields of 5 per cent and above, making them a good option to seek out a property to invest in.

Affordability and demand

Although still more expensive than elsewhere in the UK, property prices in these areas tend to be more affordable than in other London Boroughs. Since these areas – like many in London – see high levels of demand, rental costs can remain high, which brings the benefit of more attractive yields when you invest in property. This is the main reason why market research is so vital, especially if you want to find out how to invest in London property and make a healthy profit.

Capital growth

While these areas make a solid choice for property investment in London for 2019, it’s always worth looking ahead. As mentioned above, some areas in London, such as Earls Court and Croydon, are expected to see growth by 2020. This makes them good options if you want to find the best area to invest in London, allowing capital growth to improve along with rental yields.

Buy to let a good idea 2019?

Despite Brexit uncertainty and the unpredictable nature of the London property market, UK buy to let investment remains a good investment for 2019.

Unlike other types of investment, such as stocks and shares, the buy to let market offers long term returns. When you purchase a property in a prime UK location, you can benefit from consistent rental income each month, along with the capital growth.

The potential that lies within the UK buy to let market is what makes it stand out towards foreign investors. Overseas investment has always been popular in London, with the proportion of international investors buying London property at an all-time high. London property news has presented findings showing that international investment across London had grown by 30 per cent year on year. Overseas investors may be tempted by investment opportunities in London due to presumptions that since London is England’s Capital, it’s the most reliable City to get involved with.

To do this, take your estimated monthly rental income and multiply this by 12 for your annual figure. Once you have this figure, divide your annual rent by the property’s purchase price and then multiply this by 100 for your rental yield. Keep this calculation in mind when shopping around for London investments to avoid making the wrong purchase.

London Investment Property Market

The UK property market has long been considered a fantastic investment opportunity. Whether it’s the high rates of overseas investment or booming house price growth, there’s plenty of reasons to invest in UK property.

Boasting the fifth largest economy in the world, the UK is known for its strong economic, cultural, and political influence. Britain was hailed one of the most prosperous economic regions in Europe between the years of 1600 to 1700, going on to dominate both the European and world economy throughout the 19th Century.

Today, the UK remains the economic powerhouse it was all those centuries ago, growing at its fastest rate in two years during the end of 2018. However, recent economic uncertainty surrounding Brexit negotiations has led many to question — are investment properties in London a good route to take? And is it worth it to invest in London property? The short answer is yes there are great opportunities but like gold you have to find them – Oxford Acquisitions can help – let’s talk and see how we can help you to make a lifetime income.

Investing in the UK 

Jurisdictions across the globe have either introduced new or strengthened existing rules controlling foreign investment: the UK is no exception and the trend for even greater transparency in UK  property  has continued, especially where overseas investors are involved, driven by the UK Government’s wider push to tackle corruption. Here we look at a few key changes which overseas investors in UK property need to be aware of; the likely impact of those changes and the reaction from overseas investors so far.

Register- Overseas Entities

Two years after this was first announced by the then Prime Minister, David Cameron, The Registration of Overseas Entities Bill was finally published in July and the consultation on the draft legislation closed in September. From 2021, there will be a new register of the beneficial owners of overseas entities that own or wish to buy or let UK property. Such overseas entities will be required to be registered with the details of their “registrable beneficial owners”, determined on the same basis as under the Persons of Significant Control regime introduced in 2016. Overseas entities will be unable to register the purchase, sale, charge or grant of certain Leases of UK property at the Land Registry unless and until they appear on the new register. The potentially serious implications of failure to comply with the new requirements (including criminal liability and the inability to register title to UK property) will mean that additional due diligence checks and warranties will be needed to ensure that an overseas entity has an up-to-date registration number and that the one-year update period has not expired (or will not be expiring before completion of the transaction).

What can overseas entities do now to prepare for the new regime? Those overseas investors who either already own UK property or wish to buy/lease UK property should review their corporate structures to identify who their “registrable beneficial owners” are and continue to monitor these proposals to ensure prompt registration when necessary. While the new rules have yet to be finalised and various uncertainties remain not least as to exactly which entities will be exempt, how to raise awareness of the rules coming into force (to avoid criminal liability simply by doing nothing) and how JPUTs and foreign government pension and superannuation funds will be affected. One thing is certain: the new rules will add another layer of complexity to property transactions involving overseas investors.

Additional tax burdens on non-resident investors

In addition to the new overseas entities register, a few tax changes have either been announced over the past 18 months or are in the pipeline, which will also affect overseas investors. Examples include Capital Gains Tax on disposals by non-resident investors in UK property, Corporation Tax (rather than Income Tax) on non-UK resident companies that carry on a UK property business and, most recently, a proposed additional 1% SDLT surcharge on foreign buyers of UK residential property.

Regulation and tax

What has been the impact of these additional regulatory and tax changes so far? Is it just “business as usual” …? If initial signs are anything to go by, the appetite of overseas investors to investing in UK property has certainly not been dented: 2018 saw record levels of overseas investment into London with Asian investors accounting for the largest share with £3.6bn in bought property, and South Korean investment in particular showing a significant increase on its 2017 levels. In addition, there are expectations for a new wave of Japanese investment into the UK, although no-one expects this to happen instantaneously. The picture is not quite so rosy for outbound investment from mainland China, which has fallen markedly over the past year, but this is due more to the introduction by the Chinese Government in 2017 of tighter controls on foreign property acquisitions than as a result of these proposed changes.

There are clearly challenges ahead in terms of overseas investors getting up to speed with the new regulations and making sure that registrations are completed and kept up to date.  The changes being introduced by the Overseas Entities Register are unlikely to act as a significant deterrent to investment in UK property. More important are the increased tax burdens facing overseas investors but, as we said at the start, the UK is to a large extent merely playing catch up with other jurisdictions where similar rules are already in place.

Brexit – Asian investors remain significant investors into the UK notwithstanding the current uncertainty. Although recently there has been some shift in the sources of capital and a dip in overall UK investment volumes in the third quarter of the year, the perceived advantages of investing into the UK (and particularly London), including favourable exchange rates, have largely outweighed concerns related to the UK’s withdrawal from the EU.

The fundamentals for investing into the UK remain strong and far from pulling up the drawbridges, UK property remains open for investment from all parts of the globe.

Tax – Update

The UK tax questions that matter most to the property sector: How will we be taxed on our income and capital gains, how much SDLT will we need to pay and what capital allowances are available are invariably near the top of the list? At least for some investors, the answers to all of these will be changing over the next couple of years. Add to this a new 2% digital services tax that will apply regardless of physical presence and there is plenty to think about following the 2018 Budget.

Capital gains tax- Non-resident

In many other jurisdictions, overseas investors have not, until now, had to pay UK tax on UK property gains (other than on certain direct disposals of residential property). However, this is set to change from April 2019, when non-UK residents disposing of UK property (whether commercial or residential) will be liable to UK Capital Gains Tax.  Indirect disposals of UK land held through “land rich” holding vehicles (such as a Company, Partnership or Trust) are also caught. Looking further ahead to April 2020, non-UK resident companies that carry on a UK property business or have other UK property income will be charged corporation tax on that income, rather than income tax as at present. Together these changes will put UK and overseas investors in UK property in very similar UK tax positions from 2020.

The Government started laying the groundwork for non-resident capital gains in 2013, with the introduction of ATED-related CGT. But this doesn’t make the expanded scope any less of a fundamental change to the taxation of commercial property in the UK. Rebasing to April 2019 will be available where the asset was not previously within the UK tax net and the Finance Bill provisions contain a few complex elections and exemptions designed to lessen the blow for property funds and exempt investors such as entities benefitting from sovereign immunity. The point remains, however, that from next year a few non-UK resident investors will be facing additional tax on their investments in UK property. Time will tell the effect this will have on the market as a whole and the impact on pricing.

Surcharge for foreign buyers and reduction in filing window- SDLT

Theresa May made a surprise announcement at the Conservative Party Conference in early October 2018 of proposals for an SDLT surcharge for foreign buyers of UK residential property. The surcharge is expected to be 1% but other than this, few details have been published. This is not without precedent: Canada, Singapore and New Zealand have all introduced foreign purchaser restrictions already and New South Wales introduced a 4% surcharge purchaser duty on foreign buyers in 2016 which was raised to 8% last year. It is not yet known whether there will be any exemptions from the charge but overseas investors in student accommodation, care homes and the like will be keenly watching this space. There are, however, likely to be questions as to how such a charge on non-residents can be made compliant with EU law (for so long as the UK remains subject to this).

 

Introduction of a 2% digital services tax and helping the high street  

One of the biggest headline-grabbers from Budget 2018 was the new 2% Digital Services Tax, to be introduced from April 2020. The Chancellor acknowledged in his speech that the best solution to the difficulties of taxing the digital economy would be coordinated international action. However, pending broader international agreement, he has decided to go it alone. By targeting revenues from activities such as online marketplaces that are linked to the participation of UK users (rather than physical presence in the UK) this may go some way to addressing the perceived tax imbalance against High Street retailers.