UK property will remain popular with investors for multiple reasons. It's a stable market which has seen steady price growth for many years, even during times of political and economic uncertainty. A careful balance between supply and demand means that there are always buyers willing to pay good prices in this sellers' market, and due to the nation's general housing shortage there is also a strong rental market which makes it easy for investors to make great rental returns year on year.
London property is expensive, there's no doubt about it. But purchasing property in London is a great move for buyers who are looking to make a sound investment which offers strong returns in the long term.
Is UK property popular with Hong Kong buyers?
Absolutely - in fact London has recently seen a surge in demand from buyers in Hong Kong. This is likely in part due to the recent changes made to stamp duty and interest rates in the UK, as well as new security laws in Hong Kong.
Prime Minister Boris Johnson recently extended an offer of UK citizenship to three million residents of Hong Kong due to the political struggle for control occurring between China and Hong Kong at the moment. This has made the UK an incredibly attractive prospect for many HK residents, and resulted in a huge surge in interest coming from Hong Kong.
Estate agent Chestertons have noted that between June 1 and July 7 2020, double the number of new buyers from Hong Kong had registered when compared to the same period in 2019. (https://www.mortgagestrategy.co.uk/news/london-sees-surge-in-demand-from-hong-kong-buyers/)
This means that today, buyers from Hong Kong have an incredibly important place in the UK market. In fact, buyers from Hong Kong and mainland China now make up 15% of central London's international buyers for sales above $1.2 million. Buyers from Hong Kong now outnumber buyers from both India and Russia as London's top international investors. (https://www.forbes.com/sites/clairecarponen/2020/07/03/londons-prime-property-market-sees-surge-in-hong-kong-and-mainland-chinese-buyers/#1ea896556835)
It's no surprise that London property is so attractive to international buyers when it offers world-leading stability and growth. But one huge consideration to make before investing in property is the legal details: how much will investing in London property set you back?
Legality and taxation for buyers from Hong Kong
Between the recent tax cuts made by the UK government and the fact that the Hong Kong Dollar (HKD) is as strong as it's been in quite a while, there are some good financial incentives for Hong Kong investors to purchase property in the UK at the moment. But before making a decision like this, it's important to understand five key taxations which apply to purchases in the UK.
Stamp Duty Land Tax
Stamp Duty Land Tax applies to all property prices above the UK above a certain price, starting from 2% for properties worth between £125,000 and £250,000, rising to 5% for properties up to £925,000 and 10% for properties between £925,000 and £1.5 million. A 12% tax is charged for property value over £1.5 million. There is also an additional charge for buyers purchasing a second home or rental property of between 3% and 15% depending upon the property value.
However, it's worth noting that there is a current stamp duty holiday until March 2021 in the UK which drastically lowers many of these tax rates, savings potentially tens of thousands of pounds for some buyers.
Purchasing a UK based investment property requires the buyer to register for income tax in the UK. How much income tax you will have to pay - or if you have to pay it at all - will depend on your specific circumstances. Hong Kong citizens who live outwith the UK will be taxed at 20% of their total UK income up to £34,500, with a higher rate kicking in after this.
British expats living in Hong Kong can also take advantage of their UK personal allowance, meaning the first £11,850 of rental income will be tax free.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax paid upon the sale of a property. It's calculated by subtracting the sale value of the property from the purchase value to identify the gain made. CGT must be paid by UK expats, non-UK residents and UK residents who are selling additional properties. CGT is usually paid at a rate similar to income tax, but it's important to calculate exactly how much CGT you'll need to pay before you make a sale.
Non-Resident Landlord Scheme
The Non-Resident Landlord Scheme requires that overseas investors register for income tax in the UK. A non-residential landlord will only pay income tax on profits made in the UK, including rental profits, which means they shouldn't be taxed for the same income twice. The Non-Resident Landlord Scheme applies to all landlords who live outside of the UK for at least six months every year.
Finally, Inheritance Tax (IHT) is paid out of your estate when you die. The rate of IHT you pay is based not on your residency status but on your country of domicile, which means most people born or raised in the UK will pay IHT according to UK law while people born and raised in Hong Kong will pay IHT at a different rate. People domiciles in the UK pay IHT at a rate of 40% for all assets above the £325,000 threshold.
While these taxes don't generally amount to more than buyers would pay elsewhere, it's important to know how much you will pay in tax when purchasing a property in the UK, as well as which taxes you will be subject to annually thereafter. Taxes like Stamp Duty are paid at the point of purchase, while income tax will be owed to the HMRC at the end of each tax year, which runs in the UK from 6th April to the following 5th April each year.