Landlords based abroad continue to flock to the UK rental market, attracted by the country’s stability and strong economy as well as the property sector’s stellar reputation.
Property investors and landlords from overseas tend to invest in the UK’s major cities, with London historically attracting the greatest amount of foreign money.
But while the UK capital remains a strong investment prospect, many landlords are increasingly boosting their profits by focusing on cities such as Manchester, Liverpool and Birmingham, where stronger rental yields and better performing house prices tend to generate better returns over time.
According to research conducted by proptech firm Payprop, the greatest number of payments to landlords based overseas have gone to Singapore, taking 17.1% of the market share since June. This is closely followed by investors in Switzerland, with 16.2% of payments, and Hong Kong (15%) over the past three months.
Buyers and active landlords from these locations are therefore the most prolific investors in the UK rental market, and Payprop is now urging letting agents to use this as an opportunity to tap into demand for UK property from abroad.
At the same time, the company is urging policymakers to adapt to these “evolving market trends”, which could involve the government reassessing how it deals with overseas property investors from a tax and payments perspective.
Overseas landlords enjoy strong UK market
Over recent years, the UK rental market has experienced extremely high levels of growth in terms of tenant demand and rental prices, which is one reason that landlords from overseas continue to consider it as a priority investment location.
Yields have increased to their highest levels in some parts of the country, and while house price growth has stabilised, the north of England has led the way for those looking for stronger capital appreciation prospects.
Currency exchange also plays a part, with many overseas buyers having made the most of a weaker pound over the past few years, essentially securing a discount when they buy property in the UK. This has also helped offset other costs, such as the higher stamp duty rate that applies to overseas property investors buying in the UK.
Navigating the market
Most overseas landlords and property investors enlist the services of a letting agent or property manager. Their role is to help them navigate things like international payments, tax issues, right to rent checks, anti-money laundering laws, energy performance certificates (EPCs) and other issues that may arise.
Neil Cobbold, commercial director for PayProp, said: “Overseas landlords represent an important segment of the UK rental market.
“For overseas landlords, engaging a letting agent’s fully managed service is not just a convenience but an important insurance policy.”
He adds that the current tax regime for landlords based abroad could lead to them paying less tax on their rental income than UK buy-to-let owners, and he believes the government should “consider equalising these rates”.
“This would help encourage domestic investment to complement the interest from overseas,” he added.
Taxes for overseas investors
If you live outside the UK but receive an income from a UK rental property, you are classed as a non-resident landlord under UK tax laws. This applies to individuals, companies, trustees and partnerships – each partner is treated as a separate landlord for their share of the rental income.
It normally involves the landlord’s letting agent calculating tax each quarter on the rental income received, minus the deductible expenses they’ve paid.
Capital gains tax also applies to non-resident landlords of UK rental property, which is a tax on profits made on the sale of a property that is not a main residence (ie. a rental property or second home).
For more detailed information, landlords are advised to seek professional advice, and use the UK government’s website.
