The UK is, indisputably, a world-renown hotspot for foreign investment.As a country that continues to lead many industries, it is hardly surprising that the demand for housing shows growth despite the global economic slowdown.
Investor confidence here is anything but fickle. The very year the Brexit vote occurred; Britain hit a record high for foreign direct investment. The net value jumped from £25.3 billion in 2015 to a staggering £145.6 billion in 2016 - the largest yearly value recorded in a decade (Reuters, 2017).
Where is the investment going?
For years London has been the focal point of investment but it is now experiencing enormous change.
With the recent approval of the new HS2 budget, we are in the midst of a nation-wide market boom. It will help to further address the north/south imbalance and allow the northern powerhouses to seamlessly harness one another’s resources.
The top real estate winners according to industry experts in 2019 were Birmingham, Manchester and Leeds - all which achieved on average 20% growth in property prices since 2014 (Property Investor Today, n.d.).
Introducing the new 2% stamp duty tax
Seeing as there is such a lucrative housing market in the UK, the conservative government is now about to hedge the foreign investment surge by introducing a new 2% stamp duty tax on non-UK resident-owned properties. This policy, which was announced in the 2020 Budget Speech, is to make housing prices more affordable for British citizens and to stabilize the property prices.
The Stamp Duty Land Tax (SDLT) currently starts at 3% for homes valued from £125,000 up to 15% for houses valued over £1.5 million (GOV.UK, n.d.). The additional 2% will be levied on top of all other stamp duties payable including an additional 3% payable for second homes or buy-to-let properties (Pickford, J. 2020).
*An additional property purchased for less than £40k will attract 0% tax. For purchases from £40k to £125k the SDLT rate will be 3% on full purchase price. The SDLT rates above apply to freehold residential purchases in England and Northern Ireland.
Note: Further stamp duty relief is available for first time buyers.
What does this mean for you?
Properties that exchange after the 11th of March 2020 will be impacted by the 2% surcharge if the development is completed after April 2021. However, regardless of when the completion date is, if the exchange occurred before 11th March 2020, the understanding is that the new 2% surcharge will not be applicable. Further guidance is still pending from the government on the exact logistics.
The new stamp duty may seem a little stifling to foreign investment, however this move is very much reflective of changes in other global property markets. In Hong Kong, Singapore and parts of Canada, for example, some surcharges are in excess of 10%. It is also worth noting currency fluctuations may well offset some taxes on overseas purchases, seeing as just this year, the pound has fallen 3% to the US dollar. In addition, the long-term effective discount rate in USD before the Brexit decision is more than 20% (Knight Frank, 2020). Due to these other factors, London and the wider UK residential markets are still prime locations for investment and the foreign capital influx is not expected to wilt any time soon.
With strong interconnectivity and sustained growth, your future is still very much secure with a property investment in the UK.
Knight Frank. “Budget 2020: Key Takeaways for the Residential Market.” Knight Frank, www.knightfrank.co.uk/research/article/2020-03-11-budget-2020-key-takeaways.
Pickford, James. “Overseas Homes Buyers Face 2% Stamp Duty Surcharge.” Subscribe to Read | Financial Times, Financial Times, 11 Mar. 2020, www.ft.com/content/ff4124f4-63b0-11ea-b3f3-fe4680ea68b5.
“Stamp Duty Land Tax.” GOV.UK, www.gov.uk/stamp-duty-land-tax/residential-property-rates.
“Top Ten Buy-to-Let Locations for 2020 Revealed.” Property Investor Today, www.propertyinvestortoday.co.uk/breaking-news/2019/10/top-ten-buy-to-let-locations-for-2020-revealed.
“UK Landed Record Foreign Investment in Year of Brexit Vote.” Reuters, Thomson Reuters, 1 Dec. 2017, uk.reuters.com/article/uk-britain-economy-investment/uk-landed-record-foreign-investment-in-year-of-brexit-vote-idUKKBN1DV4EI.