Residential property is a key asset for many wealthy people. This will, of course, include a primary place of residence, but may include a second home, or investment properties.
London and its prime central locations in particular, remain relatively popular and have historically offered good returns. According to property investment firm London Central Portfolio, Capital growth in London central has averaged over nine percent p.a. over the last 15 years, even taking into account the short downturn during the credit crunch. This represents a doubling of value every eight years.
It added that gross annual rental returns are around 4.5 percent based on rent vs. capital expenditure (purchase price and renovation costs).
One reason why prices keep increasing is the attraction of the market to foreign investors. Changes introduced in 2013 by Chancellor George Osborne, mean that property worth £1 million or more that is held in a structure (such as a business or a trust) now have to pay Annual Tax on Enveloped Dwellings (ATED). Some suggested that this would mean London would become less attractive to overseas buyers. However, this has not deterred all wealthy individuals from buying in London, as the returns are still relatively high and there is the cultural and lifestyle element to the city.
In addition, within central London, there is a limited stock of residential property available.
Outside of London, property remains a strong asset for many investors. However, another clampdown by the UK Government on wealthy buy-to-let landlords means tax reliefs are likely to be cut.
Individual landlords can deduct their costs, including mortgage interest, from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40 percent and 45 percent. This tax relief will be restricted to 20 percent for all individuals by April 2020.
As well as standard residential property, some much wealthier individuals may consider a landed estate. Although traditionally viewed as being the preserve of the British landed gentry, interest in these properties from foreign buyers has increased in the past two decades. However, landed estates come with extra concerns, complications and liabilities. Some professions suggest that they need to be run more like a business than a home.
When buying a residential property, investors should consider the total cost, which may include the purchase price, professional fees (from agents, lawyers, etc.), any renovations or refurbishment required, stamp duty and running costs.
Stamp duty changes introduced in 2014 put in place a sliding scale, so that more tax is due for more expensive properties. In addition, the Government is introducing a higher rate of stamp duty for additional residential properties.
Other tax considerations should also be taken into consideration when buying or selling property. It is sensible to seek professional tax advice when making high value property transactions.
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