A Short Guide to Buying Property in the UK

This guide is not intended to be an exhaustive description of the laws of the UK on the several and varied subjects covered. It is intended merely as point of reference. Michael Reason & Partners LLP have a breadth of experience in this and related areas and can offer advice and assistance from the earliest stages of a property transaction.

Owning a well-selected property in the UK is a practical way to secure a regular investment income, provide a second home, to make capital gains and if the investment is structured correctly to minimise tax on income and gains.

Property as an investment. 

Whether one is buying or selling for personal or business reasons it may be useful to be familiar with the technical property jargon used by property professionals and the press. The following are some definitions of terms which may be of use in considering a step in the property market.

Yield: In general this is a fraction formula of the gross rent achievable after service charges and maintenance costs (say 8) over the market value of the property (say 100) being 10/100 or 10%. If this is greater than the current rate of interest (say 5) then the property is going to be profitable as a Buy to Let.

Buy to Let: a property purchased as an investment with the intention not to live there but to let it to tenants. Specific mortgage products are available for such investments.

Freehold: A title to land which is the best obtainable. If the property is not let let by the freeholder then such title includes  the right of occupation.

Leasehold: This is a form of land title which includes ownership and the right of occupation for a predetermined period usually at a rent. Rent may be 'rack' for commercial properties nomally for shorter terms or 'ground' normally a low rent on a long residential letting. In theory, at the end of the term of the lease, the property reverts back to the landlord and the former leaseholder may be asked to vacate although there statutory controls which grant security of tenure to both residential and commercial tenants in most cases. Sometimes a residential tenant has the right to acquire the freehold from the Landlord.

Assured Short hold Tenancy: The law has radically changed in favour of landlords in recent years and now, an assured short hold tenancy allows a landlord to issue a tenancy in excess of 6 months and give a tenant two months notice (to expire after the  6 months  period). If there is nothing at all in writing with the tenant, the landlord will be able to terminate the tenancy on giving two months notice. It is still advisable to have a written agreement to settle principal terms,and dates on which rent is paid and terminationprovisions.

Land Registry: the government department in charge of maintaining the register of titles to land. Once a title is registered it is in effect “government guaranteed”

Stamp Duty Land Tax: This is a tax on the transfer of titles to property payable at the time of purchase by the buyer calculated as a as a percentage of the value of the property. Currently nil up to £125,000*, 1% £125,000* to £250,000, 3% £250,000 to £5000 and 4% is the highest charge (for properties of over £500000).(*£150,000 for Eurpoean Enterprise Areas)

Agents Commission:When selling a property an estate agent might be employed to market the property and to introduce a buyer. Agents generally charge 2% when acting as sole agent and 3% when their agency is non-exclusive. Agency contracts tend to be written to provide that the agents commission is payable at the time of completion but liability for the commission arises at the time of exchange.

Many estate agents are able to assist with locating suitable properties and in the   management of rented  property. Typically an estate agency will charge 10% of the gross rental income per annum for finding a tenant and 10-15% per annum for managing the property. The local agents will be able to find a tenant, obtain and check their references, check that the rent is being paid and check that the property remains in good order. It is esential that a damage deposit is taken from a residential

NHBC

It is common for the construction of new properties to be guaranteed by the National House Builders Council, for  up to10 years. Property managers regularly maintain most purpose-built blocks of flats and the lease owners are charged annual or six-monthly service charges.

Forfeiture of Deposit

Upon exchange of contractsparticularly in residential transactions the seller will seek a deposit of between 5 and 10% of the purchase price as a sign of the purchasers willingness to proceed with the purchase Although it is very rare for a buyer to exchange contracts, pay a deposit and then fail to complete, such an occurrence can happen at which time the buyers deposit may  be forfeited. The seller may have to use a substantial part of it to settle various costs possibly including the whole of the estate agents commission and may consider looking to the buyer  (who is in breach of contract)  to compensate for consequential losses.

Michael Reason & Partners LLP,

3rd Floor, 8 Moorgate, London EC2R 6DA

Ph: +44(0)207-600-3111

Fx: +44(0)207-600-4111

mreason@michael-reason.com

Sources

Tolleys Tax Planning 2003-04

Tolley’s International Tax Planning, Third Edition, MJ Finney and J Dixon, October, 1996

Liquid History, To commemorate Fifty Years of the Port of London Authority, 1909-1959, Arthur Bruant, Privately Printed, London 1960

The Groundwork of British History, Part II, George Townsend Warner, M.A. and C.H.K. Marten,M.A. Blackie & Son Limited Glasgow , 1926.