It is very tax efficient for a person from Europe, Far East or Middle East to invest in either residential or commercial property in the UK. Despite the perceived austerity programme administered by the UK Coalition Government property prices have held up well in the UK particularly London. Rental yields are strong and borrowing costs are low. Properties held in the UK including holiday lets is treated as a property owning business with attractive tax deductible reliefs to write off against rental income.
A UK non-resident can apply to HMRC under the Non-residents Landlord Scheme (NRLS) to avoid a tenant and/or managing agent withholding UK tax at the rate of 20% from the gross rental income. Under the NRLS an owner of property(ies) agrees to file an annual self assessment tax return. The landlord can claim deduction for expenses in managing the property owning business.
- Loan interest costs
- 10% Wear and Tear Allowance for furnished lettings
- Management Agent fees
- Repairs and Maintenance
- Energy (green) saving measures
- Equipment in communal parts of a building
If a person is concerned about UK inheritance tax there are more viable property owning structures through the use of say, a Channel Islands property holding structures. For Middle East investors it is also possible to construct a property portfolio which is complies with Islamic rules on investment. Many banks in the UK offer Islamic finance.
In respect of commercial property it is possible to claim tax depreciation on investment in plant and machinery and certain fixed items to a building.
A non-resident landlord is not subject to UK capital gains tax (CGT) on any gain on disposal of UK property. Given that the typical return from most properties comprises 50%+ in capital growth this makes it an attractive post tax investment.
It is noticeable from the forthcoming Olympic games in London that rental yields are on the increase. However, there is a perception that after the games have finished there will be a collapse in the market due to over supply of rental accommodation.
This could be a good time to buy up London property for long term growth. Also many investors looking to let their property in the Olympic games have possibly overlooked the point that they are conducting a holiday letting business which have additional attractive tax reliefs.