UK real estate has long been a ‘safe haven’ for international investors, with the market’s strong performance throughout the pandemic highlighting its resilience as an investment asset.
Driven by the stamp duty holiday, this generous discount not only benefited UK buyers, but also served as an added incentive for foreign investors.
With that in mind, it’s no surprise that the number of overseas homeowners is reaching a five-year high, now surpassing 184,000. This growing amount of investment is a major driver of property prices in the UK. Uni, which topped £ 300,000 for the first time in history.
However, all good things must come to an end, and with the stamp duty holiday ending in September, will the recent surtax change the outlook for foreign investors?
What is the supplement?
As of April 2016, in addition to the Standard Stamp Duty Property Tax (SDLT), investors are required to pay an additional 3% fixed stamp duty on the total value of all additional properties valued above 40,000 £.
However, the UK government has also implemented a 2% surcharge for foreign investors. This surcharge will be in addition to current stamp duty rates and will apply to the majority of international buyers, including foreign investors and international businesses. The government has made it clear who will be exempt from the surtax, primarily those involved in real estate investment trusts and other collective investment vehicles.
The surcharge is largely introduced in response to the upward trajectory of UK real estate over the past 20 years, the majority of which has been supported by international investment. This level of growth – barring momentary declines – has made it increasingly difficult for first-time buyers in the UK to climb the real estate ladder, hence the surcharge.
What does this mean for foreign investors?
When this additional surcharge was announced in 2016, many experts predicted a sharp increase in overseas buyers investing in Buy-to-Let properties in the UK, followed by a sharp drop. While international investment remained strong in the years leading up to 2020, additional uncertainty surrounding Brexit and the pandemic was almost guaranteed to deter foreign investors.
However, the Stamp Duty Holiday not only propelled the UK property market, but also dissolved the majority of concerns surrounding Brexit. With the relatively positive results we are seeing across Britain after Brexit, combined with the continued growth stemming from the stamp duty vacations, the potential real estate growth in the UK could far exceed the duty surcharge. stamp abroad.
But as government incentives end and the full effects of the stamp duty surtax are felt, will UK real estate remain a long-term investment choice for foreign investors?
Andy Foote, Director of SevenCapital, comments: “While we’ve been aware of the surtax since 2016, the 2020 whirlwind overshadowed it to some extent. But now in full swing, investing in UK property will inevitably be more expensive for non-UK investors.
“Considering the standard rate, combined with the surcharge, foreign investors could face additional payments that they did not consider in their real estate investment planning.
“That said, the performance of the property market over the past year, combined with its expected growth, still positions the UK as a successful and affordable property hotspot compared to alternative countries.
“Not only has the average house price exceeded £ 300,000, rental yields are climbing across the country. While the UK average rental yield is currently 3.53%, emerging areas like Bracknell are at 4.80% for two-bed apartments.
‘Offering passive income of up to £ 1,103 per month and £ 13,236 per year, this stamp duty surcharge is unlikely to deter foreign investors, with the potential for price growth of 14.5% by 2025 offering only more incentive to invest in UK real estate. “
Between Brexit, a global pandemic and major tax changes, the UK real estate industry has seen it all. Market resilience alone provides investors with the assurance that property is a solid investment, and with this growth set to continue, the stamp duty surcharge is apparently a small price to pay for a potentially lucrative asset.