https://gulfnews.com June 6, 2018
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 (that is the term of the lease). Here are some important aspects to consider in relation to the acquisition of a UK residential property.
Anti-money laundering (AML) legislation
Under the new AML regulations, which came into effect in April, 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, be prepared and have the documents ready to be able to comply with regulations.
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 landscape in England and Wales over the past few years:
• CGT is now payable by non-UK residents on gains accruing post April 6, 2015;
the introduction on April 1, 2016, of the 3 per cent SDLT surcharge levy for buyers of second homes, which includes buyers who own residential property abroad; and
• if the buyer is a company, a change to the law on April 6, 2017, means the value of the shares is subject to IHT.
Tax considerations are likely to be one of the most important factors to determine the most optimum acquisition structure. However, and in conjunction with tax planning, there are also a number of other factors to consider:
• who will buy the property, whether it will be a special purpose vehicle (SPV), a trust or an individual;
• if the buyer is an 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?; and
• any other factors such as family requirements, succession planning, confidentiality, intended level of occupation and Sharia issues.
The pre-exchange stage is probably the most important part of the conveyancing process. It is the buyers’ responsibility to ensure that the property is suitable for their needs and that there isn’t anything that 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.
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 per cent 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.
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.
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.