UAE buyers have a strong relationship with the UK property market. Last year it was reported that an estimated 30% of prime London property purchases were from the Middle East. We help buyers from this region, invest into London and across regions of the UK.

The UK property market is an attractive place for investment for all nationalities, but there has been a growing number of British expats in the UAE planning to invest in the UK. Recently, one of the leading expat lenders said more than 15% of the Expat buy-to-let mortgage applications came from the UAE, significantly higher than any other country.

In the first half of last year, buyers from the Middle East invested $2.8 Billion Dollars into the London market alone. That equaled almost 25% of all Middle Eastern international property investment.

As of April 2016, there will be changes in the tax laws when investing into the UK real estate market. Find out how the changes in the Stamp Duty land Tax (SDLT) will affect expat buyers who are considering investing in UK property.

[Related: Investing in UK property]

What is Stamp Duty Land Tax?

Stamp Duty Land Tax, or Stamp Duty, is the tax payable when purchasing property in England, Wales and Northern Ireland. It’s normally paid within 30 days of completion of the purchase. Usually the buyer’s solicitor will file the tax return on the buyer’s behalf and add this to their fee to make the process easier for the buyer.

If you’re buying in Scotland, you will pay a similar tax which is the Land and Buildings Transaction Tax.

How much is the Stamp Duty?

Stamp duty is calculated on increasing portions of the property price. It ranges from 0% to 12%.

How is this the tax system changing?

From April 1st 2016, there will be a 3% surcharge on each existing tax band, for purchases of second homes and buy-to-let properties. (meaning a property bought with the intention of being rented out or being the second residence of the purchaser).

Before the changes, the same rate would apply for a second home, buy-to-let investment or a primary residence.

What will I have to pay before and after the changes?

When buying an apartment in Liverpool or Manchester for example, priced at £150,000, before the 1st of April 2016 a property buyer from the UAE would pay 0% on the first £125,000, then 2% on the amount from 125,000-250,000. In this case that would equal 2% payable on £25,000 which equals a total of £500.

After the 1st of April 2016 however, the buyer, will pay an additional 3% on each band, so 3% on the first £125,000, then 5% on the amount from 125,000-250,000, which equals £5,000 payable in tax, which is an additional £4,500.

If you were investing in a property in London, let’s say for example East London for £600,000, under the old system you would pay £20,000 but from 1st of April 2016, it will cost £28,000.

However, these costs can later be offset later against the profit made in the growth in value of the property.

Why is this happening?

The new tax, is said to help first time buyers get on the housing ladder. There are a growing number of people who are renting property due to the rising UK property prices, meaning many cannot afford to buy their own home. Halifax Bank stated that from October 2014 to 2015, house prices rose by 9.7%. This is largely due to a lack of new homes being built, and a growing number of buyers.

The UK’s strong economy and currency, political stability and the supply and demand imbalance is attracting many investors, particularly overseas, to invest in the UK property market. The increased competition from investor buyers is driving price growth, which is far above wage growth.

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How does this affect buyers who are Expats in the UAE?

The new tax will mean an increase for anyone buying an additional residential property. This will include second homes and ‘buy-to-let’ properties.

If you are considering buying property in the UK, then you should act now to take advantage of lower tax rates.

The changes come into force from April 1st 2016 so by exchanging contracts and completing a property transaction before April 1st 2016, you should be able to pay the lower rate, before the added surcharge comes into effect.

Originally from the UK, Adam holds a bachelor’s degree in Law. Throughout his career, Adam has held various roles in within business development, product distribution and research within the real asset investment sector. Adam is now with Hanover Square Real estate, specializing in the UK property market.