Overseas buyers – complexities of buying a property in England

The process of buying a residential property in England can be more complicated than purchasing a property overseas. There are a number of key factors which differ from overseas systems and understanding these differences can help overseas buyers navigate the system and ensure they secure the property they choose. We have set out below the main complexities for buyers to consider:

Non-binding offer

One of the key elements for buyers to be aware of is that neither party is legally bound to sell or buy the property until contracts have been exchanged. Buyers can therefore have an offer accepted on the property, spend time and money on carrying out surveys and legal due diligence only for the seller to change their mind and pull out prior to contracts being exchanged.

In a strong selling market, the seller might accept a higher offer from another party after having accepted a buyer’s offer which is known as gazumping. Conversely, a buyer can also pull out at any stage prior to exchange. When a buyer lowers their offer just before exchanging contracts this is known as gazundering. In order to minimise the risk of being gazumped, buyers should be prepared so they can proceed quickly and should also consider negotiating an exclusivity agreement which is a legally binding contract where the seller agrees to deal exclusively with the buyer for a specific period of time.

Conveyancing process

In order for a buyer to be able to proceed quickly whilst ensuring they are adequately protected, it is important to understand the various stages of the process.

Firstly, the buyer needs to make sure they know how they will fund their purchase and be ready to move quickly once they have found a property. We recommend the buyer instructs their solicitor before having an offer accepted so that their solicitor has dealt with the onboarding processes and provided the buyer with preliminary advice on the best structure for the purchase.

Once the buyer has found a property and agreed the sale terms then the agent will issue a memorandum of sale setting out what has been agreed. As mentioned above, the memorandum is not legally binding but it allows both parties solicitors to contact each other and start the due diligence process. This is a sensible time for the buyer to instruct a survey which we have mentioned in more detail below. The buyer’s solicitor will review the title, carry out searches, raise enquiries with the seller’s solicitor and negotiate the contract for sale. Once they are satisfied with their due diligence, they will send the buyer their report on title.

The next step is exchange of contracts which is when the buyer becomes legally bound to purchase the property and when the deposit (usually 10% of the purchase price) is paid to the seller’s solicitor and the completion date is fixed.

The final stage is completion which is when the balance of the purchase price is paid, ownership of the property is passed to the buyer and the buyer receives the keys for the property.

Freehold and Leasehold system

In England ‘freehold’ and ‘leasehold’ are two different ways that property can be owned. With freehold ownership, the land and any buildings on it are owned outright. Subject to certain exceptions, the owner can do what they like with the property. This type of ownership is common for houses.

If a leasehold interest in a property is owned, the owner does not own the land or building containing the property. They are granted a lease which gives them an exclusive right to occupy the property (either by the freehold owner or an existing leasehold owner) for a certain period of time. At the end of that period, the property reverts to the freeholder. Their occupation will be subject to certain conditions which are set out in the lease. This type of ownership is common for flats. Leases can be for terms of 99 to 999 years and are considered to be equivalent to outright ownership as the freeholder is unlikely to get the property back during their lifetime. However, there are potential issues for owners of leasehold property such as escalating ground rents and service charges and challenges with extending the lease. The government is currently trying to deal with some of these issues but it is important to understand the implications of owning a leasehold property and the buyer’s solicitor will be able to advise on these.  

Taxes

Any overseas buyer will need to consider the tax implications for purchasing a property in the UK. The main tax that a buyer will incur when purchasing a property in England is Stamp Duty Land Tax (SDLT). SDLT will be payable on the amount that is paid for the property and is charged as a percentage of the purchase price. Overseas buyers should be aware of some of the factors which can increase the SDLT including owning more than one property anywhere in the world (5% surcharge) and being considered to be non-resident for SDLT purposes (2% surcharge). There are certain reliefs and exemptions available and so it is important for the buyer to make sure they take proper advice on the structure of the purchase so that it is tax efficient.

Surveys

Although a property may look in good condition on an initial viewing, there can be a number of hidden issues with it so in England, surveys are an essential part of the investigation process. The buyer should carry out their own surveys, which will be at their cost, prior to exchange of contracts. This will involve a building survey and where the property is listed, a heritage survey as well. The building survey will report to the buyer on the physical condition of the property and highlight any physical defects, potential structural issues and areas which require repair works. A heritage survey will look at the planning history of the property and in particular, whether any works have been carried out to the property which do not have listed building consent.

The results of these surveys will help a buyer understand any works which may need to be carried out in the future and budget accordingly. If significant defects are found then the buyer may consider whether they want to continue with the purchase or whether they want to negotiate a price reduction or retention as a contribution towards the costs of any required works.

Privacy

In England, once the property is registered in the buyer’s name at the Land Registry, the details of the buyer and the price paid are public knowledge as anyone can obtain a copy of the title for the property. This is more transparent than some countries and in addition, new rules came into force in 2022 to enhance the transparency of property owned in this country by foreign firms, trusts and shell companies. A buyer purchasing the property in one of these structures needs to be aware of these rules and make sure they comply by registering the entity on the overseas register.

For buyers where discretion and privacy is paramount, there are various ways they can be protected when purchasing a property in England including the relevant parties entering into NDAs, off market sales, confidentiality clauses being incorporated in contracts and taking action in relation to information available about the property online. Please see our article on How to maintain privacy & confidentiality when buying, selling or improving a prime residence.

If you have any questions about the content of this article, please contact Vanessa Rhodes.

about the author

Vanessa is a partner in the Real Estate team and is experienced in a range of commercial and residential property matters.