Exploring luxury London property as a Hong Kong resident

With its rich history, diverse culture, booming economy, and vibrant lifestyle, London is also famous as an attractive investment destination for foreign property buyers. However, navigating the complex property landscape of the UK can be a daunting task, notably for international investors, as the lending environment in the country differs from anywhere else in the world, as well as from property to property. To help our Hong Kong-based property buyers, we at Benham and Reeves have compiled a list of considerations & factors to take into account, ensuring a well-informed and successful journey while venturing into London’s luxury property market.

Mortgage process for Hong Kong-based property investors

i. Preparation: When considering the purchase of a luxury property in London as a Hong Kong resident, it is crucial to be well prepared for the financial commitments involved. In addition to making a deposit when the time comes, you will need to provide evidence for everything disclosed on the application and ensure you have the correct documentation. Payments ideally need to be made through a UK bank or a bank that lends internationally to facilitate smoother transactions.

ii. Types of Mortgages: Depending on your goals, several types of mortgages are available for your investment in the UK. These include new purchases, bridging loans, Lombard lending, remortgages, equity release, individual lending, and property loans for residential and semi-commercial units. Navigating this varied borrowing landscape can be overwhelming. Therefore, we recommend hiring a specialist mortgage broker with knowledge of both Hong Kong and the UK. Speaking to a broker early on can help you assess your borrowing capacity and make informed decisions.

Understanding your budget

Before you start your property search, it is essential to have a clear understanding of your budget. Beyond the property’s purchase price, there are several fees and expenses to account for, that include:

i. Application fees: Charges associated with submitting your mortgage application.

ii. Valuation fees: Fees for assessing the value of the property that you’re considering for purchase

iii. Solicitor fees: Costs for legal services during the property transaction.

iv. Mortgage lender fees: Charges levied by the lender for processing your mortgage.

v. Legal due diligence: Comprehensive legal assessment charges to ensure the property has no hidden issues.

vi. Annual maintenance expenses: Ongoing costs to maintain and manage the property.

vii. Furnishing costs (if applicable): Expenses for furnishing and equipping the property.

viii. Payment schedule (if applicable): For new builds, you will also have to take account of the payment schedule of the development and plan your budget accordingly to ensure timely payment.

Taxes associated with luxury property purchases in the UK

Purchasing luxury property in the UK comes with various tax obligations. Although the existing double taxation agreement between the UK and Hong Kong protects buyers from being taxed in both countries, some of the key taxes overseas property buyers need to be aware of include:

i. Stamp Duty Land Tax (SDLT): SDLT is a tax paid on the purchase of property above £250,000 in the UK. The amount varies depending on the property price, with higher rates for more expensive real estate.

ii. Capital Gains Tax: Capital Gains Tax is applicable if you sell a property for more than you paid. This tax may come into play if you decide to sell the property at a profit in the future.

iii. Income Tax: If you earn rental income from your London luxury property, you may be subject to UK income tax. Hong Kong residents should be aware of the tax implications of rental income and ensure proper reporting to remain compliant with UK tax regulations.

iv. Non-Resident Landlord Scheme (NRLS): The NRLS applies to non-UK resident landlords who receive rental income from UK properties. As a Hong Kong resident investing in London, you need to register under this scheme to ensure that the correct amount of tax is deducted from your rental income at source unless you obtain approval to receive your rental income gross.

v. Inheritance Tax (IHT): IHT is a tax paid on the value of a deceased person’s estate, including property, above a certain threshold. Proper estate planning is essential to mitigate potential IHT liabilities. This can involve structuring ownership, considering trusts, or taking out life insurance policies to cover the potential tax liability.

Legal obligations in property deals

In a property transaction in the UK, both the buyer and seller have distinct legal obligations that ensure a transparent and fair process. The buyer’s obligations involve conducting due diligence on the property, securing financing and adhering to the timeline stipulated in the agreement. On the other hand, the seller’s legal obligations include providing accurate and complete information about the property, addressing any required repairs or disclosures and ensuring that the property’s legal title is clear for transfer.

It is important to note that property transactions in the UK are not legally binding until the exchange of contracts. While negotiations and agreements may take place, the actual legal commitment to buy or sell the property occurs only when contracts are exchanged. This provides a level of flexibility and protection for both parties until all details are finalised and agreed upon.

Understanding what you’re looking for

Before embarking on your luxury property search, consider the following factors:

i. Property Use: Determine if the property is for personal use, investment, or both.

ii. Size: Consider the number of bedrooms, bathrooms, and overall square footage.

iii. Location: Identify preferred neighbourhoods, whether you want a city or suburban lifestyle, proximity to schools, and walkability.

iv. Connectivity: Determine if development’s proximity to stations and the travel times to educational, corporate and leisure destinations in London are within your requirement.

v. Style: Decide between newer or older developments, off-plan or completed properties, and whether you prefer apartments or houses. Properly inspect any property before and after the purchase to ensure it meets your expectations.

Additional tips for Hong Kong-based investors

When purchasing property in the UK, there are a few extra tips to keep in mind:

i. Open a UK bank account as soon as possible to facilitate financial transactions.

ii. Understand that while the loan application process is similar to Hong Kong’s, it might take longer due to differences in regulations and processes.

iii. Consider taking out a life insurance policy to mitigate some of the Inheritance Tax (IHT) liability.

Expert assistance from Benham & Reeves

To help you through every step of the process, Benham & Reeves has put together a step-by-step guide for Hong Kong-based property investors in the UK. Our in-house experts have decades of experience in facilitating lucrative property deals for overseas investors in London and across the UK. They will provide valuable insights and support, ensuring your luxury property investment journey in London is both successful and fulfilling.