UK Residential Property Acquisition – An overview for Middle East Purchasers or Investors
This article will examine some of the key initial considerations as well as provide an overview in relation to the conveyancing process when buying a residential property in the England and Wales.
The term ‘conveyancing’ is the legal process of transferring the ownership of a property from one party to another. In the UK there are two types of legal ownership of a property; freehold and leasehold. An owner of a freehold property will own that property in perpetuity whereas an owner of a leasehold property will own the property for a period of time (i.e. the term of the lease).
Some important aspects to consider in relation to the acquisition of a UK residential property are set out below:
Anti-Money Laundering (AML) Legislation
Under the new AML regulations which came into effect on 1 April 2018, estate agents are now required to carry out due diligence on their customers, and the beneficial owners of their customers if the client is a company, before entering into a ‘business relationship’. A ‘business relationship’ includes putting forward any offer made by a buyer to a seller. Therefore, it is important to be prepared and have the documents ready to be able to comply with the regulations at the outset.
The acquisition of UK residential property will give rise to tax liabilities and these potentially include stamp duty land tax (SDLT), an annual tax on enveloped dwellings (ATED), income tax and ultimately capital gains tax (CGT) and inheritance tax (IHT).
There have been a number of critical changes to the tax land scape in England and Wales over the past few years and these relate to the following:
- CGT is now payable by non UK residents on gains accruing post 6 April 2015;
- The introduction on 1 April 2016 of the 3% SDLT surcharge levy for buyers of second homes which includes buyers who own residential properties abroad; and
- If the buyer is a company, a change to the law on 6 April 2017, mean the value of the shares are subject to IHT.
Tax considerations are likely to be one of the most important factors in relation to determining the most optimum acquisition structure. However, and in conjunction with tax planning, there are a number of other factors to consider in relation to the most efficient structure such as:
- Who will buy the property whether it will be a special purpose vehicle (SPV), a trust or an individual?
- If the buyer is a SPV or a trust will this be incorporated off-shore and, if so, in which jurisdiction?
- Will the property be an investment?
- Will financing be required?
- Any other factors such as family requirements/succession planning, confidentiality, intended level of occupation and Shari’ah issues.
The pre-exchange stage is probably the most important part of the conveyancing process. It is the buyer’s responsibility to ensure that the property is suitable for their needs and that there isn’t anything which would adversely affect their enjoyment of it.
To assist the buyer in reaching this decision, the buyer’s solicitor will analyse the title documentation, carry out searches with the relevant authorities, raise enquiries with the seller’s solicitor and then provide the buyer with a detailed report, flagging any issues arising from such due diligence.
Once the buyer is happy with the due diligence, both parties have approved the contract and the buyer has paid the deposit, which is usually 10% of the purchase price, the parties will be in a position to exchange contracts. Exchange means that a legally binding agreement has been created between the seller and the buyer. Neither party can withdraw after exchange without incurring penalties.
Following exchange, it is necessary to finalise all the legal documentation such as (but not limited to) the transfer deed, mortgage deed and lease/licence to assign (if applicable) and arrange for execution of these documents. At the same time, and if applicable, a request will be made to the lender to drawdown the funds. A completion statement will be issued to the parties confirming the amount required to complete and pre-completion searches will be undertaken.
To ensure that there is no delay in completion, it is recommended that the balance to complete is transferred to the buyer’s solicitor’s client account one day before completion. This will allow time to rectify any potential shortfall.
Completion takes place when the seller’s solicitor confirms receipt of the funds in their client account. The buyer will then collect the keys from the property agent.
It should be noted that as a consequence of ‘solicitor’s undertakings’ and the use of, for example, the Law Society Conveyancing Protocol the conveyancing process in England and Wales is comprehensive and secure.
Following completion, the buyer’s solicitor will submit for payment any SDLT, apply to register the transfer of ownership of the property with the land registry and ensure that any financing is registered against the property by way of a first ranking charge. Post completion formalities are largely administrative but are also a very important part of the conveyancing process.
If you are planning on buying a residential property in England and Wales, it is essential that you appoint a specialist residential property lawyer as not only is the process complex (as a number of additional factors need to be considered), but also an experienced conveyancer will ensure the process is as efficient as possible whilst at the same time protecting their client’s interests.
The Future of Property Careers
Join to our panel discussion and Q&A with industry leaders on the range of opportunities within the property and construction sector.
Can a restrictive covenant become obsolete?
Q&A on adverse possession
A successful application for title by adverse possession will result in the squatter acquiring possessory title to land.
Oliver Park writes for LexisPSL Property Disputes on liability for costs of repair
Oliver considers the implications of the decision in City of London v Leaseholders of Great Arthur House.
Procuring modular housing: Is MMC becoming mainstream?
Is Modern Methods of Construction becoming mainstream? Read what it means for Development and Procurement here.
Q&A: Talking the telecoms talk
Georgina Muskett and Jonathan Wills answer queries on Electronic Communications Code agreement.
Property Patter: Navigating the complexities of Pharmacy Property
Pharmacy property is a specialist area which contains many traps for the unwary.
What do the new Debt Respite Scheme Regulations mean for Landlords and Tenants?
This will provide legal protection from creditors in the form of either a breathing space or a mental health crisis moratorium.
Risk allocation in commercial leases: the High Court considers rent suspension, insurance and frustration arguments
Read our summary of the full judgement on the latest Covid arrears case.
ICC 2021 Rules
The ICC has recently updated its rules for arbitration: the new rules entered into force on 1 January 2021 (the “2021 Rules”).
Building Back Better: Real Estate and Restructuring
How and why should hospitality businesses re-structure post pandemic?
Asian Legal Business, Hubbis and eprivateclient report on the firm's expansion in Hong Kong
The firm's Hong Kong office continues to expand with the relocation of Real Estate Partner Simon Green to lead the firm’s focus in Asia.
UK property market continues to thrive
Stamp Duty, Green houses and 5% deposits: The Government’s Commitment to Housebuilding Continues
We look at the current raft of measures the Government has in place to support home ownership and the housebuilding industry.
Use and Regulation of Renewable Energy Certificates in the UAE
The market for trading in renewable energy certificates is set to increase in both visibility and importance.
Charles Russell Speechlys LLP continues Hong Kong growth with the relocation of Real Estate Partner
We are delighted to continue the growth of our Hong Kong offering with the relocation of Simon Green to lead the firm’s focus in Asia.
Government consults on lifting commercial rent restrictions
As the Government consults on lifting of CRAR enforcement procedures, read our summary of what this means for landlords here.
Lockdown rent arrears: the High Court gives its (summary) view
Lockdown arrears: the High Court gives its view
The High Court's judged on a landlord's application relating to rent arrears, owed since COVID-19 hit. Read what it means here.
First Homes: Bringing You Up To Date
Claire Fallows sets out the latest position on the introduction of First Homes into the planning system here