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New Diversity, Equity and Inclusion changes to the Actuaries’ Code and Guidance
Jenny Higgins
If you are looking to invest in the English property market, there are a number of factors for you to consider.
The purchase of both commercial and residential properties is open to overseas investors. The type of property you decide to invest in will be influenced by many factors, including: price; location; rental returns; and use. There are a wide number of property experts who have an in-depth knowledge of the English property market and can assist you in finding the right property.
1. Freehold or Leasehold Property
The majority of properties in England are classified as freehold or leasehold. With freehold, you own the property and the land it is built on and with leasehold, you own the property for a fixed period of time and not the land it is built only. The purchase price of a leasehold property will reflect the term of ownership remaining.
When buying an apartment, these will usually be leasehold, with you owning the apartment and a freeholder owning the outside of the building and the common areas used by the other occupants of the building. With a leasehold, there will usually be a maintenance fee payable to the freeholder to maintain the building and common areas. Similarly, if you are looking to buy an interest in part of a commercial building, then this would usually be a leasehold.
There are pros and cons relating to both types of ownership.
2. Heads of terms
A property expert will act on your behalf in negotiating the purchase price and the various terms to be agreed between the parties, which may include: rental apportionments; obtaining vacant possession; and timings etc. The agreed terms are usually referred to as the heads of terms. Even though not legally binding, the heads of terms will form the basis upon which the sale will proceed.
3. Appointment of a solicitor
Whilst you are locating the property, you should simultaneously appoint a solicitor. A solicitor will act on your behalf and advise you throughout the transaction. They will also carry out the due diligence exercise (detailed below) as well as negotiating and agreeing the sale documentation and casting an eye over the heads of terms to ensure these meet your requirements.
The sale agreement will be prepared by the seller’s solicitor, having reference to the agreed heads of terms, which will then be reviewed by your solicitor and agreed between both parties’ solicitors.
4. Due diligence
Your solicitor will carry out a full due diligence exercise to identify any risks which may or may not directly affect the value of the property, its use or ability to be developed. These will include:
- a review of the seller’s title to identify whether there are any rights benefiting the property, such as rights of way over an adjoining property or any reservations/restrictions affecting the property, which may prevent or hinder the proposed use or your ability to develop the property, such as a restriction on business use or the sale of certain goods from the property;
- carrying out a number of searches to reveal whether there are any issues within the vicinity of the property, which may affect your use and enjoyment of the property. These may include environmental considerations, flooding, mining, infrastructure projects, planning and other local restrictions;
- raise enquiries of the seller to identify whether there are potential problems relating to the property, such as a dispute with an adjoining neighbour or works carried out to the property without the necessary planning approval. The enquiries enable you to seek clarification on issues of concern and are designed to give you a complete picture of all matters that may affect the property; and
- preparing of a report on title, highlighting the salient items relating to the property collected through the due diligence exercise, to enable you to make an informed decision as to whether you wish to proceed with the purchase.
At the same time, you would normally instruct a surveyor to carryout a detailed inspection of the property to identify the condition of the property and any defects or potential problems with the property. If there are any legal issues identified by the surveyor, these can be raised by your solicitor. The surveyor will also be able to give you an estimate for any works required to remedying any defects or potential problems. A surveyor can also give you a property valuation.
5. Mortgage
If you require a loan to assist with the purchase of the property, a lender will secure a charge against the property to protect their interest should you fail to make the repayments. The lender may appoint their own solicitor or use your appointed solicitor. The lender will carry out their own survey to ensure that the property comprises sufficient security for the loan.
6. Structure
You have the ability to purchase the property as different entities which include, most commonly, in your own individual name(s) or in the name of a company. If buying in the name of a company this may be one registered in the UK or registered in an overseas jurisdiction (known as an overseas entity), but where the company is an overseas entity you will be required to register information regarding the ownership of the company at Companies House before you can complete a purchase. There are then ongoing annual requirements to verify this information or face a fine.
7. Taxation
As an indication of the main taxes payable on the purchase and the ownership of a property, we refer you to the following taxes, which are dependent on how the property is owned, the type of property and the use of the property:
- on the purchase of a property Stamp Duty Land Tax (“SDLT”) will usually be payable on the purchase price. This is calculated by reference to a sliding scale dependant on the price paid for the property. Where the property is commercial, Value Added Tax (“VAT”) may also be payable on the purchase price (and SDLT is calculated on any VAT as well);
- where a property is residential, valued at above £500,000 and owned by a company, then the Annual Tax on Enveloped Dwelling (“ATED”), may be payable. This is an annual tax, though there are certain reliefs (such as for a buy to let);
- where the property is rented out, income or corporation tax will be payable on the profit (with restrictions for mortgage interest costs where held by an individual);
- on the sale of the property capital gains tax or corporation tax will be payable on any gain; and
- on death, the property will be subject to inheritance tax at the rate of 40% in excess of the tax-free allowance, known as the nil rate band allowance. This is currently fixed at £325,000 until 2028.
8. Exchange
Exchange is the date that the parties become contractually bound to proceed with the purchase and consequences are imposed on the party at fault if completion does not take place. At this stage, the buyer will pay a deposit, usually 10 per cent of the purchase price to the seller’s solicitor, which will be held by the seller’s solicitor until completion.
9. Completion
Completion usually occurs either within a couple of weeks of exchange or following any pre-completion conditions in the sale contract having been satisfied.
Completion is deemed to take place when the completion monies reach the seller’s solicitors account. If you fail to complete on the date of completion, then the seller’s solicitor may serve notice to complete, and if at the end of this 10 working day period, you have not completed, you may lose the deposit. The seller may also claim interest and damages for late completion.
If the seller fails to complete, you will have the right to enforce legal remedies, which may include a claim for damages and interest.
10. Post Completion
Following completion, Stamp Duty Land Tax (SDLT) is paid and the property is registered at the Land Registry, as evidence of your legal ownership of the property.
In summary, it is important that a solicitor is instructed at the outset, to guide you through the process and to enable you to make an informed decision as to whether to proceed with the purchase.
further information
If you require any assistance or further information about anything covered by this article, please contact our real estate team.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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