Tax payable by non-resident landlords
Investors need to be aware of the tax implications of property ownership.
Anyone buying property in the UK, regardless of nationality or place of residence, has a tax-free allowance which is currently £11,500 per annum. This means that if the total value of the rental income does not cross this threshold each year, then there is no tax payable. An investor would need to own approximately two or three rental properties before this threshold was reached.
The Government runs a scheme called the Non Resident Landlord Scheme which avoids the property manager withholding tax at source. This can be signed up for with HMRC. Using this scheme, landlords file their own tax return if the threshold on rental income is surpassed.
Married investors can combine their own personal allowances together, giving them a rental income allowance of £23,000.
The shifting of currencies against the pound is something investors should be aware of – and attempt to leverage.
As we have seen since the Brexit referendum, the drop in the pound has made UK property relatively cheap for foreign investors. As the pound recovers – which happened in the first half of 2017 – this investment becomes worth more as it strengthens against other major currencies such as the USD or AUD. This added advantage is something that investors need to consider.
The ‘Mortgage’ payment plan
Typically, mortgages are offered by banks on the basis of a 20 – 30% deposit, with 20% being the minimum amount. The repayment period varies, but the loan tenor is often in the region of 25 years.
For buy-to-let properties, it is possible to repay a mortgage over 15 years, provided that all money from rental is ploughed back into the repayments. This means that income thereafter goes directly to the hands of the investor.
The ‘No Mortgage’ payment plan
A payment plan that is unique to Prosperity / APW, the ‘no mortgage’ plan allows for rental income to fully pay off the property over 9 years without the need for a mortgage. This saves on mortgage arrangement fees and is a no-fuss solution for investors around the world who don’t want to be involved with banks and lenders.
Purchasing through a company
For investors who wish to acquire a portfolio of different properties, one solution is to create a holding company under whose title the properties are owned.
This is a somewhat complex approach which became popular after the changes in the 2015 Budget. The company route allows for lower taxation on multiple properties and has implications for inheritance.
There are drawbacks which consist of lesser mortgage availability and additional paperwork obligations.
Investors are always advised to consult an independent financial advisor on tax matters as pertain to their situation.
For more sophisticated investors (and high net worth individuals), the option of investing virtually in bricks and mortars is an interesting one.
Property mini bonds are available, which enable investors to buy a share of property rather than signing up to own the actual physical unit.
Mini bonds can make an interesting and lucrative addition to any property portfolio, but are for intended more sophisticated investors only.
Once you’ve picked up the keys for your new property, you will find yourself facing a new set of obligations.
The upkeep of the property – as well as broken items and wear and tear – will become your liability. While new UK properties have a ten year warranty, you can expect that there will be occasional items to replace, such as a faulty water heater or oven.
Fortunately, property management firms can take care of all these matters for you. Look for recommended property managers, who will charge between 8 – 12% of the property rental. They will be able to handle all matters in your absence.
Additionally, landlords will have to pay for ground rent and service charge on leasehold properties. Different types of insurance are also your responsibility, but good management companies will be able to take care of this for the landlord.
If you’re keen to explore the UK property market, we can help you learn more.
- Join one of our free monthly webinars for in-depth advice from one of our property experts
- Download our eBook, an A-Z guide on building a secure retirement income with a property portfolio
- Subscribe to our investor insight newsletters to learn about upcoming property hotspots and tips