UK Buy-To-Let: A Guide for UAE Investors

The UK buy to let market has long been considered one of the most lucrative forms of property investment with the potential to deliver a high rate of return for those investors with a solid understanding of the costs involved.

Latest forecasts from Savills points to an average house price growth of 5.1% over the next four years – with an additional forecast showing rental prices set to rise by 8.5% too.

The resilience of the UK buy to let market and its ability to bounce back from economic downturns, for example, has highlighted it as a lower risk investment in contrast with other investment counterparts.

Owing to this relative pattern of stability is the ongoing demand for housing on top of expanding populations in specific UK cities which is only set to continue.

This has made international investors particularly interested in expanding their portfolio in the UK property investment market – especially investors within the UAE where the housing market is much more unstable after failing to pick back up post-pandemic.

For those based within the UAE wondering how to invest in UK property it is essential to understand that there is no guarantee property investment will be without its risks – yet an insight into the financial costs involved with buy to let will help potential investors to make a more informed decision.

What should UAE Investors know?

International investors will be subject to a different process as opposed to UK-based investors – though luckily those in the UAE looking to invest in UK property do not need UK-resident status to do so.

Possibly the main difference will be getting an international buy-to-let mortgage – ensuring eligibility will mean going through a specialist lender to find the best rates. However, in some cases, high street lenders may offer BTL mortgages for international investors.

In turn, UAE investors may be subject to harsher background checks that will require more paperwork, for example – though standard documentation will include proof of identity, proof of address and a source of funds.

This will be handled through solicitors, banks and the agent handling the purchase – working with trustworthy partners to smoothen the process during the legal sections may be a good idea when investing abroad.

There are three main types of tax to expect for UAE residents looking to invest in UK property – these will directly consist of:

Stamp Duty Land Tax (SDLT)

The Stamp Duty Land Tax comprises of a tax that is paid upon buying a property in England and Northern Ireland – it operates under a progressive tax system which means that buy-to-let investors will be subject to varying tax rates on certain portions of the property price.

For example, at present, a property bought for between £250,001 to £925,000 will see buy-to-let investors pay 5% stamp duty tax. The price varies depending on circumstances, however – first-time buyers will be subject to a discount whilst any additional or overseas purchase can increase the amount of SDLT to be paid.

Prices vary also on the type of property purchased – whether it is residential, non-residential or mixed-use will impact the overall tax amount.

SDLT must be paid within fourteen days of the completion of property purchase where a Stamp Duty return will be forwarded to HMRC. It is helpful to have a solicitor to process this as they can help in identifying any potential stamp duty relief which they can claim for you.

Capital Gains Tax (CGT)

Capital Gains Tax is tax paid upon the sale of a property when there has been a profit made – it is calculated through the sale value being subtracted from the original purchase price.

There are a varying number of factors that will define the amount you pay such as your income, for example. In the UK, CGT for property is taxed higher with basic rate taxpayers expected to pay 18% on any gains made with higher and additional-rate taxpayers paying up to 28%.

If, however, you make a net capital loss on your property investment you can carry it forward and deduct it from your capital gains in the future.

It should also be noted that CGT is subject to an allowance of £12,300 per person – this means that the first £12,300 on any gain you make when selling your property will be exempt from the CGT.

Non-Resident Landlord Scheme (NRLS)

A Non-Resident Landlord is classed as an individual who spends more than six months outside of the UK in any given tax year.

This will explicitly apply to UAE investors who will automatically be enrolled on the scheme – this ensures that income tax is solely paid on the UK property as opposed to any additional domestic properties. This therefore removes the prospect of double taxation occurring.

The NRLS does not mean that the UK property is not taxable – international investors should seek a financial expert to ensure the process runs smoothly.