London property prices have long been a thorn in the side of locals and young professionals who have struggled to get on the ladder.
The supply and demand issue is compounded by the view that bricks and mortar (especially in the south-east) is a good investment.
Massive developments have been sold to overseas buyers to fund the construction of these projects, with many investors viewing the gravity-defying UK property market as a good bet.
The pound has also taken a hammering in recent years, meaning that UK assets should look attractive to overseas investors and more should be picking up ‘bargains’.
But are they?
Unavoidable IHT
One of the plus points of UK property is that there are currently few restrictions for overseas investors, Ian Black, head of financial planning and wealth solutions at AAM Advisory, told International Adviser.
“UK property, particularly London and Manchester, has offered steady rental yields.”
But there are a few definite (and potential) stings in the tail, the Singapore-based financial planner warned.
The first, and most obvious, is inheritance tax of 40% payable on the death of the owner, “irrespective of any structuring undertaken”, Black emphasised.
He also flagged consistent attacks on investors who let properties out; namely in the form of higher stamp duty and reductions in available tax reliefs.
Short-term investing
For Jamie Morrison, head of private client at accountancy firm HW Fisher, the IHT message is getting through to investors in Asia.
As part of his role, Morrison travels from London to Hong Kong, Singapore, China and Malaysia to help educate clients.
“Before 2013, it was a fairly simple regime, but overseas clients have sort of been dragged into the complexity of UK tax. What they are fearful of is that they don’t understand the implications.”
But many have a shorter horizon for their investments, meaning that they intend to move their capital out of the UK eventually – effectively taking them out of the IHT net, Morrison explained.
So, if the investor intends to buy and sell within their lifetime, what are the other factors that could put them off investing in UK property?
Political shift
Prime minister Boris Johnson is currently trying to force a general election, which is being held up by opposition parties as they battle over the country’s departure from the European Union.
All sides say they want a general election to happen – it’s just a question of timing.
The outcome could see a Labour government return to power for the first time since 2010.
Jeremy Corbyn would likely become prime minister, resulting in a strong policy shift that could make life more difficult for domestic and foreign owners of UK property.
“There are threats, particularly from the Labour Party, to intensify fiscal attacks on property owners,” Black added.
He highlighted the loss of the ability to remove tenants, rent controls, higher capital gains tax rates, changes to estate taxes which would increase taxation on death, and shifting the responsibility of paying council tax from the tenant to the property owner.
Strength in weakness
Black continued: “Sterling could weaken further and, should there be a change of government, capital controls could reduce the ability to take money out of the UK.
“I would counsel investors to think long and hard if the weakness of sterling is what is driving their investment decisions, the UK may decide, like China, that a weaker currency is a good strategy post-Brexit to assist the competitiveness of British business and, thus, have low exchange rates for longer or even permanently.”
For Morrison, he believes that investors are still trying to gauge the market, as it is pushed around by the prospect of a change in government amid the tussle over a no deal Brexit.
“People are waiting to see if there will be dollar parity against sterling. That may be holding clients back from investing into the UK at the moment because they are trying to catch the bottom of the market.”
Short-term political uncertainty aside, Morrison believes that the UK “will always be a favoured jurisdiction because of its rule of law and stable asset prices”.
