UK Property Taxation:
UK VAT is 20%. When will we need to pay VAT? When we pay the solicitor for their service, go out for dinner. That is why normally UK people do not have much savings, and foreigners like us can buy a good value property with high rental yield. Residential property purchase do not need to pay VAT.
Income Tax is applicable for rental income. Personal Tax Allowance – each person with HKSAR passport or Chinese passport will have personal allowance of 11,000 sterling pounds per year of rental income in 2016/2017.
Capital Gain Tax – each individual can entitle tax allowance of 11,000 sterling pounds capital gain in 2016/2017. Above£11,100 will be 18% tax on capital gain amount, up to £31,785. Above£31,785 will have 28% tax on capital gain.
For example base on 2016/2017 Tax rate, total capital gain is £50,000, £5,721 (18% on £31,785) and£1,992 (28% on £7,115) = Total 7,713 to pay for tax. Effective tax rate in this example is 7,713/50,000 = 15.4%
Please seek advise from UK tax accountant if needed, or check the website of UK government for more details and updates.
Inherited Tax rate 40% only apply for the amount the property value has over £325,000 when the owner of property pass away.
Revised by April 2016, second property in the world or buy-to-let property, the buyer will need to pay stamp duty of 3% of the price being purchased.
For general transactions, solicitor fee is ranged from £1,300 to £17,00 includes VAT is different from one solicitor to another. The fee include government fee and other charges.
Mortgage application fee:
Different from Hong Kong mortgage, the applicant of UK mortgage need to pay mortgage administration fee of 0.5% of loan amount or minimum £600 whichever higher to the bank. In addition, a third party surveyor will evaluate the property value which will cost 0.12% of the purchasing price. However, there will have no penalty period like ordinary Hong Kong mortgage.
Valuation of property normally depends on location, age of property, developer. Mortgage amount in general is 70% on valuation amount or purchase price whichever lower.
Customer can do partial repayment at any time for free if they do not shorten their loan period. For early full repayment, an administration fee of £150 will be charged by the bank no matter it is after 1 month or after 9 years, besides the ordinary fee £100 for removing the mortgage charge with UK government registry, this amount need to pay even for scheduled normal full repayment after mortgage term.
(Information from Bank of East Asia international mortgage division. Details subject to property, application and applicant profile.)
The latest mortgage rate is : 3.75% = 3.25% (different from banks and applicants) + UK reference rate (which is controlled by UK government).
The length of mortgage is in maximum : (65 – Age of owner) or (65 – Age of the property) whichever lower. If there are more than one owner, the one with elder age will be put into account.
The monthly repayment amount can only be maximum 50% of sum of all owners monthly income.
For example: Age of owner is 50, then at most the schedule period of mortgage will be 15 years.
Student accommodation or refurbished apartment will be hardly able to have mortgage. Minimum mortgage amount is £50,000.
Application will be suggested 6 months before completion with the mortgage application process normally take 3 months for UK banks.
Tax and Cost Summary:
Total cost for mortgage: 0.62% on loan amount + £100
Early full repayment (eg. sell the apartment before the mortgage period end): additional £150
Stamp duty to be paid when completion: 3% on purchase price
Solicitor fee: £1,300-£1,700
Income tax: £0 (for 1 property lower than £200,000 with mortgage)
Capital Gain tax: £0 to £? based on amount deducted by allowance. Details see above explanation.
Buy commission: Nil for primary market
Sell commission: 1-3% on selling price for apartment, 5% on student accommodation
We have tax accountant that can report the tax for you.