While it may still be a sound investment, the London property market is becoming increasingly complex and care should be taken, write Francesca Rossi and Julian Bishop
Whether Brexit happens or not, the undeniable uncertainty around the UK economy has made it easy to dismiss the UK as an investment opportunity – particularly for property investors. In the past, however, the London property market has somehow managed to resist some very negative market trends and re-affirm itself as an investment opportunity. Is that still the case now?
While some areas of the capital have suffered from Brexit uncertainty, certain locations continue to attract substantial investment. In particular, the Notting Hill area is showing a remarkable resilience to the current crisis and appears to be weathering the storm just fine, unlike some of its Central London neighbours.
According to recent data from Lonres, in the last six months, the average price of houses in Notting Hill has increased by 3.1 per cent from the previous year, and the level of transactions has only marginally dipped. Whether this is due to the area’s slightly unconventional and eclectic population, its popularity with Americans, or the excellent transport links, properties are selling well, and the demand is increasing.
Foreign buyers, particularly from the US, are keeping the estate agents busy, which in turn has attracted the attention of many other property investors and HNWs. In addition, the relative weakness of Sterling against other main currencies has yielded something of a dividend for foreign investors.
But while it may still be a sound investment, the property market is becoming increasingly complex and care should be taken to ensure that risk is mitigated as much as possible.
Buyers will need to consider the right structure to make sure their money is safe and that recent tax changes – especially those concerning rental income and capital gains tax – do not make their investment less effective.
In particular, over recent years the landscape for those seeking to acquire additional residential property (for letting or otherwise) has changed in the light of Stamp Duty Land Tax surcharges on the purchase of second homes.
The cuts to mortgage interest tax relief mean that by April 2020, many residential property owners will see their income tax liability on rental income reduced only by a basic rate deduction, potentially making buy-to-lets less attractive. Also, non-resident investors have lost the exemption from Capital Gains Tax (CGT), and all disposals of UK property will now be subject to CGT.
While corporate vehicles were traditionally considered an efficient way to hold property, the new rules also catch some indirect disposals (i.e. when the property is owned by a company) and they also affect non-UK companies, which will now pay corporation tax on property profits. One needs to bear in mind also that companies face annual tax charges from the ownership of residential properties.
There are, however, ways to reduce the impact of the new rules. Specialist advice before the purchase may assist property investors in protecting their financial interest, as well as high net worth individuals, buying their family home, in making sure the asset can be passed on to the next generation.
Francesca Rossi is an associate in the Private Wealth team and Julian Bishop is a partner in the Real Estate team at Hewitsons