United Kingdom: Overview

RENTAL YIELDS

Last Updated: Jun 26, 2009

Overall UK yields, poor

2009 Global Property Guide figures gross rental yields for flats in Prime Central London are at 3.72%, and 4.59% for the rest of London. Average gross annual yield for all regions in UK are 4.09%.

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TAXES AND COSTS

Last Updated: Sep 16, 2008

Effective tax rates are moderate in the UK

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	nil	9.2%	12.0%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Unless non-residents take specific steps, they will be taxed on net rental income sourced from the UK at a flat rate of 22%, which must be withheld by the tenant or letting agent. However, effective tax rates can be brought down to around 9% with all the allowable deductions.

Capital Gains: Individuals who are not resident in the UK are not liable to capital gains tax on the sale of UK property unless they have been resident in the UK within the past five years. Then, they are liable to an 18% flat rate on any property gains during the 2008/9 tax year, after personal allowances for each spouse of £9,600 (€12,000). Indexation and tapering reliefs have been abolished, along with the entire previous income-tax based CGT system, since 5 April 2008. But £40,000 (€50,000) letting relief is available for every taxpayer.

Inheritance: Estates or assets exceeding the current tax threshold of £285,000 (€418,446) are subject to inheritance tax at 40%.In calculating the amount of the estate, the value of any gifts made by the deceased within 7 years of death must be added (some small gifts are exempt).

Residents: UK residents are taxed on their worldwide income and on capital gains from disposal of their UK assets, and most likely on their overseas properties too.

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BUYING GUIDE

Last Updated: Mar 23, 2007

Roundtrip transaction costs are
generally very low in the UK

Total roundtrip transaction costs range from 2.9% to 9.3%. Almost all buyers, UK-based or not, employ lawyers as well as real estate agents. Legal fees are around 0.5% to 1% while agent's fees are around 2% - 3.5%, plus 17.5% VAT. Buyers must pay stamp duty on a sliding scale, rising sharply to 4%, on properties worth over £500,000 (approx €736,000).

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LANDLORD AND TENANT

Last Updated: May 25, 2006

UK law is pro-landlord

Rents: Landlords and tenants can freely agree on rent levels. They can freely agree any mechanism of increasing rent levels. Deposits are lawful.

Tenant Security: Contracts naturally revert to a standard monthly contract which, after an initial six month's period of security of tenure, allows the tenant to be evicted at two months' notice. However in practice the eviction process can disadvantage the landlord.

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ECONOMIC GROWTH

Last Updated: Oct 28, 2009

Hoping for recovery in 2010

The UK (formally, The United Kingdom of Great Britain and Northern Ireland) has one of the world’s largest economies and a permanent seat at the UN Security Council. The UK has a population of 61.5 million and a GDP per capita of US$43,800 in 2008.

Although it has been a member of the European Economic Community since 1973, the UK has not adopted the euro.

The global credit crunch has had a substantial impact. London is strongly influenced by events in the world’s financial markets. The authorities are now pulling out all stops to keep the downturn short. The economy is expected to contract by around 4.4% in 2009 after GDP growth slowed down to 0.74% in 2008. UK’s GDP grew by an average of 2.56% from 2001 to 2007.

After contracting by GDP growth is expected to be positive during the fourth quarter of the year. The positive outlook is pinned on hopes that the stabilizing housing market and financial system will boost consumer and investor confidence. The weak pound is expected to boost net exports leading to economic growth.

With a GDP growth of 1% expected in 2010, the government hopes that a virtuous spiral of rising house prices and GDP can prevent more from suffering. From 5.2% in May 2008, the unemployment rate has already shot up to 7.9% in August 2009 and is expected to exceed 10% by the end of 2010.

Much hope for the recovery relies on the massive infrastructure projects for the 2012 London Olympics.

Total spending for the venues, facilities and other related expenses is estimated to be around £9.3 (US$13.8) billion. However, the organizers of the London Olympics have downplayed expectations, after the flamboyant US$42 billion 2008 Beijing Olympics. The organizers of the London Olympics have promised that there will be no white elephants left after the event.

There will be two major beneficiaries of the 2012 games:

     • London’s crumbling mass transport system;
     • East London, where the Olympic Stadium, the Olympic Village and other major facilities will be located.

To accommodate the massive numbers of people moving across the city, major improvements to the transport system include the expansion of London Underground's East London Line, upgrades to the Docklands Light Railway and the North London Line, and the new "Javelin" high-speed rail service.