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As we enter the Spring of 2023, many potential investors are looking at investment classes that fit their criteria and budgets.
Anyone investing money wants high returns, and most will likely want a tolerable level of risk so they don’t have to worry about losing everything.
One type of investment offers a perfect blend of high returns, affordable entry costs and low levels of risk – property investment.
Overseas investors are looking for property markets where they can make the most of the current economic climate and high tenant demand while seeking that trio of qualities we listed above.
The UK property market is popular with foreign investors, with affordable prices, high rental yields and tenant demand as well as a weakened Pound allowing foreign investors the chance to get more for their money through conversion rates.
With the US housing market seeing prices fall, rising mortgage rates and tighter taxes, many Americans are choosing to invest in the UK as a way of escaping the weakening property market of their home country.
With that in mind, this blog will break down why you should consider buying UK property from the USA, how the process of buying a property in the UK is different from the USA, as well as some key differences you need to watch out for as a foreign investor.
Let’s get started!
There are several reasons why UK property is desirable for expats and US citizens:
These are just a handful of the reasons why the UK is such an attractive location for property investors from around the world.
The first bit of good news for American investors is that there are no restrictions on ex-pats and non-UK citizens buying property within the UK, and there are a few additional taxes and charges you need to worry about.
However, the process of buying a property is somewhat different to the US, and there are some notable elements you should be aware of as a foreign investor. You’ll need to be rigorous in your research and conduct due diligence to make sure your investment is a solid one.
In general, the purchase process of buying a house takes longer in the UK than it does in the USA, so you need to be patient.
If you want to live in the property you are buying, you will likely need a visa, however, if you are buying with the sole purpose of investing then this is likely not required.
There are two kinds of ownership in the UK, freeholds and leaseholds. Freeholds are when you own the land the property is built on, whereas a leasehold is when you sign a long-term lease for the land and only own the property.
Many high street lenders will not offer buy-to-let mortgages to those who are buying from overseas, so you will likely need to find a specialist mortgage broker who may charge you higher interest rates.
To avoid the expenses that come with buy-to-let mortgages, try looking into off-plan property. Off-plan means developments that are not completed yet, which means they are often sold for below-market-value prices. This means you can avoid needing to pay interest on a UK mortgage.
Once you have made the decision about if you need a BTL mortgage or not, you need to find an investment property suitable for you. You can research this by contacting estate agents, searching property portals like Zoopla and Rightmove or contacting property investment companies to see what properties they have available to their clients.
You should be looking for properties in areas with high tenant demand such as major cities that are affordable and have high rental yields.
Once you have found a property that fits your criteria, the next step is to hire a solicitor and make a formal offer on the property. You may find, especially with private sales, that the asking price is higher than they expect to pay, so some negotiations could take place.
Unlike in the US, contracts are not drawn up until very late in the process, and you will have to rely upon a ‘gentleman’s agreement’ for much of the sales process. Once the contracts are drawn up though, then the solicitors of both parties will go over them to make sure there are no mistakes or inaccuracies.
You will need to go through some identity checks to ensure you are who you say you are, which will likely require you to travel to the UK to meet in person.
After this, the next step is to pay a deposit on the property, which is normally around 25% of the agreed-upon price of what you are buying.
Once the deposit is paid, a completion date will be set where the buyer pays the remaining amount of money while the solicitors ensure everything is air-tight one last time.
On the completion day, the money is handed over and the contracts are signed, and then you can finally say you are the proud owner of an investment property in the UK!
As you can see, the process of buying UK property from the USA is fairly straightforward, but it is a process that takes some time.
There are a handful of property taxes that property investors need to be aware of when they are buying UK property from the USA.
At the time of purchase, you will need to pay Stamp Duty Land Tax on top of the purchase price of the property. This is a tax the government charge on any property transaction, the amount of which increases depending on the price of the sale which you need to pay upfront.
Overseas investors have some additional surcharges on SDLT, as those who already own a property have a 3% charge on top of the base stamp duty rate. As well as this, international buyers have a 2% surcharge, so you will pay an extra 5% of the property’s value on top of the agreed upon price and whatever stamp duty you would normally pay.
There is an exemption on the 3% surcharge for first time buyers, so if the property you are buying is your first then you will pay less stamp duty.
After you start collecting rental income from your tenants, there is also income tax which you must pay on whatever money you make from the investment property. Depending on where you reside in the USA, this may differ from what you are used to.
Income tax depends on how much you earn per year, including any income you make outside of property investment, and again rises depending on your income.
If you want to sell your property for profit, you will pay a capital gains tax on the sale, which is a portion of the profit that you’ve made from the transaction. This is just from the sale of the property, not the income you have made from rents.
Last but not least, there is an inheritance tax the government charges if you want to pass on your investment property to your next of kin, which is dependent on the value of the estate you are passing on.
While there are some extra charges on top of these that you might have to pay, such as maintenance of the property or the services of a property management company if you want a hands-off investment, you can be assured you take home the majority of your income from a UK buy-to-let investment.
Here are the answers to some common questions that people have about buying UK property from the USA.
Yes! There are no restrictions to buying UK property as a non-resident, although there are some additional charges.
You will need to pay a higher level of stamp duty for any property that you buy.
The UK currently has a lower average property price than the USA, so data indicates the UK is currently a more affordable market right now. That being said, it depends upon where you buy property.
Some areas of the UK like London have an incredibly high average price, whereas others like Liverpool are more affordable.
Yes, although London is by far the most expensive city to buy UK property in. You will need a higher budget to buy in the capital than you would for other areas of the United Kingdom.
RWInvest is one of the UK’s leading property investment companies, with over 18 years of experience helping clients achieve financial freedom through property investment.
Our award-winning service specialises in some of the best areas to invest in the UK, and the properties we sell have high rental yields, affordable prices and are located in cities with high rental demand.
We have helped countless overseas investors invest in the UK, and our round-the-clock client care means you are taken care of every step of the way.
Contact us today to find out more about what we can offer!
John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.
