Equiom Tax Services and real estate experts Savills recently teamed up to hold a seminar on the subject of ‘UK property investment for Isle of Man residents and professionals’. Here, the seminar’s speakers answer key questions relating to the UK property industry.
What is the seminar about and why is it so popular?
Equiom: This seminar grows in popularity each year for Island residents and business owners who have an interest in UK property and this year was no different with more than 120 delegates in attendance. A number of important changes have been announced in the property industry over the past year, not least the reform of leasehold and changes to the taxation of UK property for non-UK residents. With the benefit of Equiom’s expertise on the tax side and Savills’ real estate professionals, we are able to make sense of these changes and give non-UK residents the knowledge required to stay better informed about their UK property assets.
Beginning with property tax, what do non-UK resident property owners need to be aware of?
Equiom: There have been considerable changes introduced to the taxation of UK property for non-UK residents over the past few years, with the current tax year being no exception. As has previously been the case, the most recent changes introduced do appear to have far wider reaching tax consequences for non-UK residents than what may have originally been anticipated. This is compounded by the complexities now being faced by non-UK resident companies, which are currently subject to two distinctly separate UK tax regimes in connection with their UK property businesses. While it is hoped that there may now be some form of consistent approach adopted to the taxation of non-UK residents with a UK property business going forward given the raft of changes which have taken place, unfortunately the pending UK election and Brexit continue to provide uncertainty in this area – and further changes may be yet to come.
In your experience, what sort of property tax charges tend to affect non-UK residents?
Savills: With falls in values in a lot of markets since 2015, we have come across only a small number of property sales where there have been liabilities to non-resident capital gains tax. Taxable estates are now being regularly considered carefully by district valuers, and this covers property falling within the remit of the inheritance tax (IHT) decennial charge, which now somewhat retrospectively impacts offshore trusts.
Turning to the market, what is your outlook for UK residential property?
Savills: There is no doubt that the current political situation is the biggest constraint on the UK housing market, impacting price growth and transaction numbers. However, regional locations, such as the North West of England, remain resilient, underpinned by their quality of life, connectivity and economic growth. Looking ahead, in the short term, the market will remain cautious and price sensitive, mainly driven by needs-based buyers taking a long-term view of the market. A rise in registered buyers and viewing activity provides cause for optimism, but buyer and seller expectations need to be aligned for that to translate into activity. We expect a recovery in confidence as the UK’s future trading relationship with the EU and other major trading partners becomes clearer. This could provide the platform for market growth once households have more certainty on the outlook for their finances, while interest rates remain relatively low.
And what’s the outlook for UK commercial property?
Savills: There are, of course, ‘disruptive forces’ impacting investor and occupier sentiment for the UK. As a result, the investment volumes for UK commercial property are down, year-on-year, which is no surprise (although end-Q3 figures are in-line with the long-term average). However, the weaker investment demand, year-on-year, must be placed in the context of wider global trends. Other markets around the world are also seeing lower investor demand and, therefore, investment volumes. We must remember that real estate is cyclical across all geographies. Looking forward, the UK is expected to show slower rental growth and total returns, but there is now more upside to the forecasts compared to a year ago. Post-Brexit/election, we expect to see a gradual uplift in sentiment and investor interest in 2020 and 2021.
Arguably, one of the biggest challenges for UK residential property owners has been unfair practices in the leasehold sector. What is the latest on the leasehold reform?
Savills: The government has put in place changes which prevent the sale of new-build houses on a leasehold basis and reduce ground rent payments to zero in all new residential leases. Further amendments are currently being considered by the law commission for existing residential long leasehold interests.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.