United Kingdom: Overview

RENTAL YIELDS

Last Updated: Jun 27, 2008

Yields are moderate at 4.9% in London

The Association of Residential Letting Agents (ARLA) gross yields data show 4.89% gross yields in Q3 2008 (see quarterly survey) in Prime Central London, and 5.08% for the rest of London. Average gross annual yield for all regions in UK was 4.89%.

Rents across the country appear to be on a long-term uptrend. Over the year, rents and therefore yields have picked up strongly. People increasingly reject buying as unaffordable, and choose to rent instead.

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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: Nov 25, 2008

Economic recession in 2009

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 60.8 million and had a GDP per capita of US$46,000 in 2007.

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

The economy grew by a negligible 0.3% GDP during the year to end-Q3 2008 and is expected to enter recession in 2009 with GDP slowing -1.5%. GDP growth in 2008 is projected to be around 0.8%, sharply down from 3% growth in 2007.

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 government has suspended the stamp duty for houses costing less than £175,000, for year until Sept. 3, 2009. It also unveiled a broad package measures to help first-time house buyers, and families at risk of losing their homes. In October 2008, it injected £400 billion into the banking system to increase the capital of banks, and push liquidity into the system.

The Bank of England has drastically reduced key interest rates. In November 2008 it reduced the key rate by 1.5% to 3%, the single biggest rate cut in the bank’s modern history.

Spending for the 2012 London Olympics may boost the economy, making the UK’s recovery somewhat faster than that of other developed countries.