Author Archives: Mikhail

Real estate taxes in the United Kingdom – A buyer’s guide

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Over the past few years, the UK government has been more focused on levying taxes on residential property. Although it adds to the complexity tied to the taxation system, the UK property market is lucrative and attracts optimistic overseas buyers in large numbers.

It is best to keep yourself abreast with all tax-related information if you are considering owning property in the UK. While solicitors should be the ones you turn to for finalisation, let’s take a quick look here at the taxes you need to be aware of.

What are the property-related taxes in the UK?

Property investment is a huge financial commitment. It is important to familiarise yourself with and keep in mind the taxes that are involved in the process.

  • Stamp Duty Land Tax

SDLT is applicable for the purchase of property in England and Northern Ireland. The kind of property and its value determines the rate that would be applicable. The rate varies based on the various band values.

For first-time residential property buyers, tax is exempted till £425,000 (from the previous £300,000 as per the tax reduction update announced in September 2022). For other buyers, the no-tax threshold has increased to £250,000 (from the previous £125,000).

The tax band varies for owning property in Scotland and Wales. Self-builders are exempted from stamp duty on building costs but still have to pay duty for land.

SDLT is applicable on the sale and transfer of property.

  • Income tax

Income tax is levied on income from a property. The relief limit is up to 20%, and landlords can deduct only actual incurred costs. Landlords can deduct the following costs before calculating the tax.
– Mortgage interest
– Insurance premium
– Council tax
– Maintenance and utility bills
– Agent

Non-resident landlords in the UK (who own property here but reside outside the country) can be individuals, companies or even trustees. In a partnership, each person becomes a separate landlord with respect to his or her share in the rental income.

  • Capital Gains Tax

CGT is applicable on gains from selling or disposing of a property. Costs related to improvements and maintenance during the ownership of the property can be deducted before calculating CGT. This includes the cost of advice received, building extensions and garages, some taxes etc.

Essentially, the total gain is the difference between the sale value and the original purchase cost. And when selling a property, the sale value is usually the sale price.

  • Annual tax on enveloped dwellings

ATED was initiated to discourage indirect property ownership, for example, via a company, to avoid taxes. If a company owns residential property valued £500,000 and more, it is required to pay ATED returns. The applicable amount is calculated on the basis of property value.

  • Inheritance tax

IHT is levied on the property of a deceased person. It is applicable when the estate value is more than £325,000. It is not levied if assets beyond £325,000 are left to a spouse or charity. The standard IHT rate is 40% and is charged on the amount above the threshold.

When it comes to purchasing property, is location still a decisive factor?

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Searching for and narrowing down your ideal house can be a tedious process. The element of huge investment aside, the space is meant to be your safe haven and calm at the end of the day. Investing in a property is a huge long-term commitment, and there are many aspects to consider from all angles so that you get the best property and the best value for money.

When buying a property, the following affects the decision of a potential buyer –

– Personal budget, relevant especially for first-time buyers who are leaving rentals to own property
– Practicality, in terms of proximity to transport links like metro stations and other public transport, schools etc
– Size of the property
– Outdoor spaces, garage/parking facilities
– Council tax bands
– Interior décor may not be as important as the above because it can be changed or altered as per taste

But the most important and underlying factor is location.

How and why is location a decisive factor when buying a property?

As per the survey, 85% of participants responded that the location of a property is the most important and crucial factor in decision-making. It is also the one element repeatedly emphasised by real estate agents.

Location may be based on the kind of property you are looking for. Apartment seekers may want options that are closer to the city centre. And those looking for family homes would prefer the outskirts so that there’s more space at the same price when compared to city-limit options.

Location probably has the most significant weightage among the elements to consider because it is one aspect that cannot be changed about a property. It also affects all the other aspects like job opportunities, commute options, property value and, most important of all, your quality of life.

What makes a great location?

If you are interested in a certain property, chances are there may be others who find it interesting too. Although it depends on individual preferences and personal requirements, there are many location-based factors that impact lifestyle and property value.

  • Local amenities

    • Convenient and easy access to local markets and supermarkets, pharmacies, basic health facilities, retail shops etc. Most buyers consider if all or most of these are within walking distance or not.

  • Transport options

    • Any location becomes more viable for buyers if there is convenient access to public transport options. Easy commute to office and work locations is the most important of it all.

  • Green spaces

    • With increased emphasis on health and mental well-being, most homeowners now place greater emphasis on proximity and access to green spaces.

    When you consider a location, you should look at the benefits you would get as a resident. Also, look at the up-and-coming areas which have prominent urban regeneration projects. While these improve the quality of life of current residents, they also prompt property price escalation in future.

    Process for buying property in the UK – All you need to know

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    Although the housing market may be evolving constantly, the process of buying and owning a property does not undergo as many changes. It is a significant financial investment, and it is best to understand the process in detail before taking the leap.

    It can take a minimum of three months to complete the whole process of owning a property. This includes the time from viewing houses and working with real estate agents and solicitors to mortgage valuations and conveyance.


    Steps for buying property in the UK

    The process may seem tedious and long; however, you can smooth it out a bit if you are aware of the steps involved and prepared for them.

    1. Understand the costs

      2. These are the different costs involved when you buy a property –

      – Deposit
      – Mortgage payments
      – Stamp duty payment
      – Solicitor fees
      – Home Insurance

      The government has a mortgage scheme that supports prospective buyers with a 5% deposit. So if you have this in hand, you could consult a mortgage advisor and AIP (Mortgage Agreement in Principle). An AIP gives you credibility as a buyer and shows that you are serious about your purchase. It also helps to speed up and give a smoother process down the line.

    2. Conduct house search

      3. There are multiple avenues for checking your options –

      – Online websites where you can refine your search options based on house prices, school areas, train stations etc.
      – Real estate agents like Glentree Estates are sometimes more aware of listings even before they appear online. Registering with one or two agents may be helpful in getting ahead of the curve. Also, they may be able to guide you better with their insights and important factors about a neighbourhood.
      – House actions may have lower prices. Despite its appeal, the flip side is that there may be risks which you may not be able to understand without a proper survey of the house.

    3. House viewings

      4. Here are a few pointers and questions to consider while viewing houses –

      – How much have similar properties in the neighbourhood been sold for?
      – Are the electrical and water lines working well?
      – How is the light and air circulation at different times of the day?
      – Why is it being sold now?
      – What is the history – how many owners, any accidents or incidents previously?

    4. Make an offer

      Through your estate agent, inform the owner of your offer. You could offer lower than the asking price, but it means you should be prepared for a good haggle.

    5. Mortgage valuation

      Mortgage applications may go on for six weeks or more. You need bank statements dating six months, employment proof and ID proof. The property will go through a mortgage valuation too.

    6. Property survey

      7. Hire a licensed building surveyor to conduct a property survey. It helps to identify issues that can impact the value of the property or any repair work related to rot or electrical wiring.

    7. Involve a conveyance

      The conveyancer will handle the legal aspect of the property purchase and ensure that all the legal documents are in order. This involves handling land registry, planning permissions, stamp duty payment and checking contracts. The first step, however, is a memorandum of sale drawn up by the real estate agent, to be signed by the conveyancers of buyer and seller.

      Real estate agents such as Glentree can handle the legal aspects of property purchases so that you can concentrate on buying the house of your dreams.

    8. Arrange home insurance

      9. You could either take the help of online sites that offer advice on the best home insurance options or turn to an insurance broker or provider to get the best deal. It is best to have it in place from purchase completion. In fact, most mortgage lenders may ask about insurance before releasing funds.

    9. Signing the contract

      By this stage, the legal representatives of the buyer and seller would have ensured that both parties were in agreement about the contract to be signed. A move-in date would be in place too, and you would have to give the deposit to your conveyancer.

      Once the contract has been signed and the deposit has been made, the house is legally yours. The deed will be transferred in your name, and you will receive the house keys.

      You can now plan and move in!

      You can contact us at Glentree Estates if you have any questions regarding the steps involved in purchasing property in the United Kingdom.