Contributed By Hawkins Hatton Corporate Lawyers Ltd
UK real estate law is derived from common law and statutory legislation. In relation to the latter, the primary legislation comprises:
UK retailers have continued the struggle to compete with online competition. This has inevitably caused a sharp decrease in investment in retail premises, such that it is now at its lowest level since the financial crisis in 2008.
Britain is sometimes known as 'a nation of shopkeepers', but this has changed with the arrival of an internet-savvy generation. The old stalwarts of the high street have been consigned to the dustbin of change as we have moved into new waters. Warnings of this collapse on the high street have long been broadcast: as far back as two years ago the British Retail Consortium warned that there would be 900,000 jobs lost in the retail sector. The national minimum wage and business rates are often regarded as the two largest costs retailers face. The other catalyst for change is shopping habits. We are still in a cycle of consumption, it is just that consumption has moved from the high street to online. There are many reasons for this, but the main one has to be accessibility. High street retailers now need fewer staff and less floor space. Less bricks and mortar are required in expensive high street locations if retailers change their business models. It should not be forgotten that this squeeze on the high street is not confined to retail shops but to financial services: many banks have also started to push their online offering in preference to having a branch operation, which inevitably leads to fewer branches and staff throughout the country.
As the UK continues its departure from the EU, investment in real estate has declined – including in London office space. This comes off the back of a number of major banks announcing their exit from London to cities such as Paris, Amsterdam, Frankfurt and Dublin. The City’s diminishing relevance as a financial centre may put an end to London office space attracting premium prices.
Despite the above, 2018 witnessed a record-breaking commercial property sale in which 20 Fenchurch Street, London (the so-called 'Walkie Talkie') sold for GBP1.28 billion, making it the most expensive office block in the UK to date. Additionally, 5 Broadgate (also a London property) sold for GBP1 billion. Despite the fact that the UK commercial property market is facing many challenges, the appetite for ‘trophy’ buildings appears strong.
House prices are also in decline due to the pressure of Brexit, especially in London. Moliar London reported that 46% of London’s 68,000 partly built homes have no buyer – the highest number since 2007. The rise in inflation due to the fall in sterling since the referendum has added to the strain in real estate, as has the rise in interest rates.
By-to-let investors are also less prevalent as new tax and regulation changes (see 1.3 Proposals for Reform, below) have undermined profits.
Until the terms of the UK’s departure from the EU are clarified, the real estate market is unlikely to change. That said, the uncertain market still provides astute buyers an opportunity to secure a good property investment deal.
Landlords were able to deduct the payment of the mortgage interest on the property from their income so as to reduce their income tax liability. From April 2020, however, new legislation will mean that a landlord will only be allowed a 20% tax credit for mortgage interest paid. This has two main implications for landlords:
This change will no doubt impact on investment by landlords in buy-to-let properties.
Individuals pay ‘non-resident’ CGT (NRCGT) at 28% on any (post-April 2015) gains made on UK residential property if they are non-resident for tax purposes.
From 6 April 2019, NRCGT is extended to (post-April 2019) gains in respect of commercial property, albeit with certain exemptions.
The Law of Property Act 1925 creates two categories of property rights within England and Wales:
Title to real estate is transferred by virtue of what is called a sale contract and transfer. There are no special laws which apply to transfer of any specific types of real estate.
A lawful and proper transfer of title is effected by submitting a duly executed transfer deed to HM Land Registry under cover of an AP1 form. This transfers the legal interest in the property from the seller to the purchaser. On receipt of the deed, the Land Registry will register the legal interest of the new proprietor and generate an electronic register of the property showing the purchaser as the new owner of the property. This registration process is stipulated by the Land Registration Act 2002.
It is possible to obtain title insurance. However, it is not common as the expectation is that a purchaser will fully interrogate and investigate title.
Real estate due diligence is carried out at all stages of a transaction. This is usually undertaken as follows:
In commercial property transactions, the seller is asked to provide replies to commercial property standard enquiries (CPSEs). These raise by way example questions regarding:
The answers provided in the replies to CPSEs constitute warranties provided by the seller to the buyer.
The remedies for misrepresentation are rescission and/or damages subject to whether the misrepresentation was fraudulent, negligent or innocent.
As detailed in 1.3 Proposals for Reform, above, an investor must consider proposed changes in legislation (including tax) which may impact the financial viability of the transaction given that an investor’s objective is to derive capital growth and/or secure income.
Land is considered to be contaminated where substances are either causing or could cause:
Generally, the person who caused or allowed the contamination to occur is liable for it unless they cannot be identified or the local council/environmental agency determines them exempt. The council may decide that the landowner or the person who occupies the land is liable for the contamination. Owners or occupiers who cause contamination remain liable after the disposition of the land, whereas, an owner/occupier who is not a polluter has no liability when their ownership or occupation of the property ceases.
A local authority search will identify the permitted use of a parcel of land and whether this use has planning permission.
Where the property does not have planning permission for the permitted use, a seller/occupier of a commercial property can obtain a lawful development certificate for an existing use or development provided it can be shown that the property has been in that use for a continuous period of ten years or more. No enforcement action can be taken by a local authority once ten years have elapsed from the date of the breach (ie, the date on which the unlawful use of the property started).
An indemnity policy is usually readily available to provide cover to protect against the risk of any enforcement action.
In relation to a building where practical completion was more than four years ago and the use of the building has been as a dwelling for more than four years, a lawful development certificate can be obtained.
It is possible to obtain authorisation from the local authority in respect of change of use and it is always recommended that, prior to any development work, clients obtain the relevant planning permission from the local authority. This planning permission will include permission required to undertake the planned works and the use of property following completion of those works.
A compulsory purchase order (CPO) of property enables councils, central government, utility companies, etc, to purchase land if it is in the public interest to do so. 'Public interest' could include:
If a CPO is granted, the land owner is paid compensation for the loss of the property.
A notice is served on the landowner of a proposed CPO and approval from government/parliament is then obtained. This notice will set a time limit for the landowner to lodge any objections. These are considered by the relevant authority, which then decides whether the CPO should be granted.
If a CPO is granted then the purchase will proceed and the landowner will be compensated. The compensation is usually equivalent to the market value of the property together with reasonable moving costs, stamp duty land tax for buying an equivalent home and reasonable legal and lender’s fees.
Stamp Duty Land Tax (SDLT)
SDLT is payable by the buyer on all property transactions in the UK.
The rates of SDLT are determined by the price of the property and the designated use of the property (ie, whether it is commercial or residential).
Residential Property Rates
SDLT is payable on property prices above GBP125,000 in the following rates:
Relief for First-time Buyers
No SDLT is paid by first time buyers on properties worth up to GBP300,000 and only 5% SDLT is paid on the portion of the purchase price between GBP300,001 and GBP500,000.
Any purchase above GBP500,000 will attract the rates detailed above.
Residential Leasehold Sales and Transfers
If a new residential leasehold property is purchased then SDLT is payable on the purchase price of the lease in the rates detailed above. In the event the total rent of the lease is GBP125,000 over the duration of the lease, then SDLT at a rate of 1% is payable above GBP125,000.
Higher Rates of SDLT
A 3% penal rate of SDLT applies on top of the standard rate for each subsequent purchase by a purchaser who owns one or more dwellings.
Non-residential and Mixed-use Land and Property Rates
SDLT is payable on increasing portions where non-residential or mixed-use land is purchased for more than GBP150,000.
Non-residential property includes:
A ‘mixed use’ property is one that has both a residential and non-residential element (such as a flat above a shop).
Non-residential and Mixed-use Land Rates
Non-residential Leasehold Sales and Transfers
If a new non-residential leasehold property is purchased then SDLT is payable on the purchase price of the lease in the rates detailed above. In the event the total rent of the lease is GBP150,000 over the duration of the lease, then SDLT at a rate of 1% is payable above GBP150,000.
SDLT Reliefs and Exemptions
The following reliefs can be applied for:
SDLT is not payable and no SDLT return needs to be filed if:
SDLT on Residential Property Owned by a Corporate Vehicle
SDLT is charged at 15% on residential properties costing more than GBP500,000 bought by certain corporate entities. The 15% rate does not apply to property bought by a company that is acting as a trustee of a settlement or bought by a company to be used for:
In addition, there is a 3% surcharge on residential properties bought by companies.
SDLT on Shares in a Company
SDLT is payable at a rate of 0.5% of the entire transaction. SDLT will be payable on transactions including a change of control of a company if shares are sold.
Sale of Real Estate is exempt from VAT unless the seller has opted to tax the land and buildings. Most new build commercial properties will attract standard-rated VAT at 20%. If, however, a property is acquired with a sitting tenant, the 'transfer as a going concern' exemption will apply provided both parties are VAT registered and hence no VAT will be payable on the purchase price. This exemption only applies where the buyer opts to tax the property before the transfer.
Capital Gains Tax
CGT is payable by an individual on the disposal of residential real estate in the UK (other than the individual's main residence) in respect of the gain (profit) made at a rate of 28% for a higher-rate tax payer or a lower rate for a basic-rate tax payer. A 20% CGT rate applies for commercial property.
A UK-based company will pay corporation tax on the investment gain (subject to any indexation allowance, which now only accrues up to 31 December 2017) on the disposal of a commercial or residential property at a rate of 19%.
The CGT exemption for non-resident investors in respect of non-residential property will be removed from April 2019, albeit with exemptions.
'Non-resident' CGT (NRCGT) is payable at 28% on any (post-April 2015) gains made on UK residential property by individuals who are non-resident for tax purposes.
From 6 April 2019, NRCGT is extended to (post-April 2019) gains in respect of commercial property, albeit with certain exemptions.
There are not currently any restrictions on foreign investors acquiring property in the UK.
Acquisitions of commercial property are generally financed by lending from institutional banks/lenders. However, many companies are also able to purchase property from their own available resources without the need for any finance.
There are also a number of private companies that offer finance to developers in order to assist with projects and development opportunities.
A lender will require a first legal charge to be registered against the property as security for the loan which is advanced.
If the purchaser of a property is a company then the lender will usually also require a debenture over the company’s assets. If a holding company (ie, a company which does not trade) purchases a property then a lender will usually require a lease between the holding company and its trading company so that the monthly payments under the mortgage can be secured.
The UK does not currently have a domestic legal framework that specifically governs inward foreign direct investment (FDI).
FIRRMA is intended to address concerns in the US about foreign investment and access to sensitive US technology, especially by Chinese investors. It will achieve this by expanding the role of CFIUS in reviewing transactions which raise US national security concerns in relation to foreign investment or acquisition of certain US businesses. This will inevitably provide further obstacles to foreign investment in the US, including investment in real estate.
A modest fee is payable to register a security over a property or a company. This fee is payable to either the Land Registry in respect of a legal charge/mortgage or Companies House in relation to a debenture or charge over shares. Additionally, enforcement of security would attract court fees and legal fees.
Before an entity can give valid security over its real estate assets, a private company director will need to have regard to his/her director’s duties and whether any transaction is for the company’s benefit and that the company is solvent pursuant to the Companies Act 2006. If corporate benefit to giving security cannot be established, a director could be in breach of his/her duties to the company. Directors are encouraged to record the basis of their decisions in board minutes and to identify the corporate benefit. It is also advisable to ask the company’s auditor to confirm the company’s solvency.
Provided the lender has secured its mortgage through registration of a legal charge against the property asset with the Land Registry, there are usually no obstacles to seeking to enforcement in the case of a default. A lender will usually enforce the security by the appointment of an LPA receiver who will manage the disposal of the property asset and repayment of the debt (together with cost of realisation) from the sale proceeds.
At the point of enforcement, no further steps can be taken to give priority to the lender’s security above those of other creditors. Priority of security is a matter to be addressed at the time of the lend by virtue of a deed of priority.
The rules governing the priority between two different security interests over the same asset vary for different types of assets.
In order for a particular security interest to take priority over an earlier security interest, one or a combination of the following circumstances usually apply:
Secured creditors will usually agree priority of their respective secured interests contractually by virtue of a deed of priority, which will rank the priority of the secured interests on enforcement.
A lender cannot generally be liable for environmental damage unless it is responsible for the cause or knowingly permits the damage. A lender does, however, need to be mindful if at enforcement it takes possession of the property, as it may then have a liability relating to any environmental issues as an owner of the contaminated land or a knowing permitter.
Secured interests of a lender are not affected by the insolvency of a borrower. However, during an administration a lender may not start or continue legal proceedings against the company and/or enforce security without leave of the court.
The London Interbank Offered Rate (LIBOR) is to be replaced by the end of 2021 with “a more reliable alternative” according to the head of the Financial Conduct Authority (FCA), Andrew Bailey. Movement away from this deep-rooted mechanism is likely to cause disturbance to a broad range of individuals and companies around the world that base their finances on LIBOR. Current contacts may maintain LIBOR in the short term, whereas it seems new contacts will adopt Sterling Overnight Index Average (SONIA). Borrowers must start to consider the effects new benchmark rates could have on their property portfolios/investments to secure a smooth transition from LIBOR. The landscape is somewhat uncertain at this stage but as the deadline approaches borrowers will be better equipped to manage the risks.
Government plans and development aspirations are contained in policy statements including in The National Planning Policy Framework (NPPF), which applies only to England. This provides the programme for generating local plans for housing and other development. It is against the background of these local plans that applications for planning permission are determined. Local planning authorities (LPAs) are also motivated to prepare a local plan which sets planning policies in a local authority area. If there is no local pan, LPAs will be deemed to adopt a 'presumption in favour of sustainable development'.
The local planning authority (LPA) will decide if a proposed development of a property should be permitted.
The developer seeking to obtain planning permission will submit plans and specifications of the intended work to be undertaken to the relevant LPA.
Planning permission is required in most new buildings, major alterations to existing buildings and significant changes to the use of a building or piece of land. When planning permission is granted it is usually subject to strict conditions with which a developer must comply.
Building Regulation Approval
Building regulations are minimum standards for design, construction and alterations to almost every building. A landowner applies to its local authority building control department for building regulations approval. Examples of where building regulation approval is likely to be required include:
When the work is carried out it must meet the relevant technical requirements in the building regulations approval. In addition, the works must not make other fabric, services and fittings less compliant or dangerous than they were before.
The local authorities for regional areas will regulate the use of individual parcels of real estate subject to prevailing primary and secondary legislation.
It is usual for LPAs to notify any neighbouring properties of a new development project or major refurbishment. Notices would be displayed and the parish, town or community council are usually also notified. This enables third parties to provide their comments on the proposed planning permission. The LPA will then consider any minor changes to the planning permission in light of these comments. Third parties have the right to apply for judicial review of a LPA decision if it is considered that a decision has been reached unlawfully.
If the LPA refuses permission or imposes conditions, it must give written reasons. Appeals must be submitted within six months of the date of the application decision letter.
It can be necessary to enter into agreements with local or governmental authorities or agencies or utility suppliers to facilitate a development project. These agreements range from the developer committing to payments towards local infrastructure improvement projects or the provision of new highways or drainage systems. The objective of such agreements being to mitigate the effects of development.
If an LPA considers that planning has been carried out in breach of the terms of the planning permission then an enforcement notice will be issued. This notice will identify the breach and stipulate what steps the LPA intends to take. Failure to comply with an enforcement notice could result in a fine. Alternatively, a breach of condition notice can be given as an alternative to an enforcement notice and the developer is required to remedy the breach of condition.
During the course of the development the LPA will undertake site visits to inspect compliance with building regulations. Failure to comply can result in enforcement action in the form of either a prosecution or additionally an enforcement notice requiring the alteration or removal of work which contravenes the regulations. If the owner does not comply with the notice, the local authority has the power to undertake the work itself and recover the costs of doing so from the owner.
Entities available to investors to hold real estate assets include limited liability partnerships, private limited companies and public limited companies.
Limited liability partnerships are comprised of members who are in partnership with limited liability. The relationship between the members is usually governed by a members’ agreement. An LLP is taxed in the same way as a partnership.
Private limited companies are comprised of shareholders who own share capital of the company proportionally to their individual levels of capital investment. Directors (who may or may not include shareholders) are appointed to run the company. The shareholders have personal liability protection, and their relationship is governed by a shareholders’ agreement. This entity is liable to corporation tax and shareholders only pay tax on dividends.
A public limited company is a limited liability company whose shares may be sold and traded to the public and listed on a stock exchange. It can therefore raise money by the sale of shares to the general public.
Limited liability partnerships are governed by UK company law but, unlike in the case of limited companies, members of an LLP can manage their own interests without forming a board.
Private limited companies are governed by the Companies Act 2006 and have a constitution (Articles of Association) to assist the shareholders and directors with regulating their relationship with the company and each other.
Unlike private limited companies, public limited companies require at least two directors and a company secretary. It is otherwise governed by UK company law. If a PLC is trading on a stock exchange it will also be subject to the regulation of that exchange.
The costs of annual entity maintenance and accounting compliance vary subject to the extent of the portfolio of properties owned by each entity.
The law recognises the following arrangements which allow a person, company or other organisation to occupy and use real estate for a limited period of time without buying it outright:
There are no specific different types of commercial leases. The nature of any lease, in terms of its duration, is a matter of negotiation and agreement between the parties.
The Code for Leasing Business Premises in England and Wales 2007 is intended to provide a voluntary code of practice to govern the negotiation of leases between landlords and tenants.
There is no typical length of a lease.
Generally a tenant will covenant to maintain and repair the property in a long lease. A tenant will limit its liability by recording the state of repair of the property as at the commencement of the lease with a schedule of condition.
It is usual for lease rents to be paid on the usual quarterly days, namely 25 March, 24 June, 29 September and 25 December.
The rent payable under a lease will remain the same for the duration of the lease term unless there is a rent review clause.
New rent under an existing lease will be determined in accordance with the rent review clause, if such a clause exists. It is usual for the rent review clause to be ‘upwards only’. The revised rent will be the greater of the rent payable at the time of the rent review and the market rent determined by a surveyor.
Less common rent review clauses provide that the rent will be reviewed in line with inflation.
VAT is only payable on rent at the current rate of 20% if the landlord has opted to tax the property.
A deposit may be payable under a rent deposit deed at the start of a lease. In addition, a tenant will be responsible for registration of a lease (if it is for more than seven years), as well as payment of the modest registration fee. SDLT is also payable for a commercial lease as detailed in 2.10 Taxes Applicable to a Transaction, above. Subject to negotiation insurance rent and service charge may also be payable at the outset.
The landlord is responsible for the maintenance and repair of the common areas used by tenants. The landlord will usually undertake to provide these services on the estate and recoup the cost from tenants via a service charge.
A tenant will be responsible for the utilities consumed by it and these will be apportioned according to the space occupied by the tenant unless the supply is segregated.
The landlord will usually insure the property and pass this cost on to the tenant.
The typical risks insured against include:
The tenant is under an obligation to use the property in accordance with the legal permitted use (ie, within use classes B1, B2 and B8 of the Town and Country Planning (Use Classes) 1987). In addition, a lease will usually specify that a tenant cannot use the property for any illegal or immoral purpose. Further restrictions on use can be agreed as part of the lease negotiations. A landlord is also able to restrict the use of the property by agreement with the tenant. For example, if one tenant on an estate has entered into an exclusivity agreement for a specific type of use of a property (eg, an Indian restaurant) then the landlord will be able to restrict the use of other properties on the estate for use within this area to enable the exclusivity agreement to be complied with.
A lease will prohibit the tenant from undertaking any external or internal structural works to the property without a landlord’s consent. Even internal, non-structural alterations to the property usually require the landlord’s consent in the form of a licence to alter.
One of the key statutory regulations which applies to commercial leases is the Landlord and Tenant Act 1954. This legislation provides business tenants with security of tenure unless the statutory provisions are formally contacted out.
As for residential leases and agricultural tenancies, these have an abundance of statutory regulation on which specific advice should always be sought.
A lease usually provides that the landlord can end the lease (forfeit) and regain the property in the event the tenant becomes insolvent. In the event a tenant goes into administration, the moratorium imposed would mean that any forfeiture action is placed on hold.
If a landlord is concerned about a tenant's ability to meet its obligations under a lease, it can require a rent deposit for particular rental payments. This usually comprises the payment of up to three months' rent up-front, which can be used in the event of default. The landlord can also insist on a personal guarantor.
A business tenant is able to remain in occupation after the expiry of the term of a lease if the lease is not contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954.
If the lease is protected then the landlord is only able to bring the lease to an end on the expiry date by providing the tenant with formal notice (of not less than six months and not more than 12 months) that one of the following are applicable to the property:
The landlord is typically able to forfeit the lease if one of the following events occurs:
Additionally both parties may have a contractual right to break the lease or negotiate a surrender of the lease.
A landlord can commence forfeiture proceedings to end the lease prior to the expiry date on grounds of the tenant’s default. How long the process would take is dependent upon various factors, including whether the tenant seeks relief from forfeiture.
It is possible that a lease could be terminated by any third party, eg, the government, if the public interest so required. Such a process would require the requisite public law requirements/criteria to be met.
Lump-sum or fixed-price contracts comprise a total fixed price for all construction-work. They are the most commonly used form of contract.
Cost-plus contracts comprise payment of the actual costs, consumptions or other expenses relating directly to the construction works.
Measured contracts will define the buildings that will be covered by the works, the period over which works may be required and an estimate of the likely total value of the works.
The 'traditional' procurement method, often referred to as 'design bid build' is the most commonly used method of procuring construction works. This is where design consultants are appointed to design the project in detail and the contractors are invited to tender for the construction of the designed project. The design consultants are responsible for design and the contactor responsible for the construction works.
The 'design and build' procurement method, as its name suggests, is where the contractor is appointed to design and construct, as opposed to a traditional contract according to which the client appoints design consultants to design the development and then a contractor is appointed to construct the works.
This is where a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate is deducted from the amount due and retained by the client. The reason for the retention is to encourage the contractor to fully discharge its duties under the contract.
Limitations and Exclusion of Liability
The three most common forms of limiting liability are:
Collateral warranties are agreements which are related with another 'primary' contract. They extend the duty of care by one of the contracting parties to a third party who is not party to the primary contract. By way of example an architect of a new development owes a duty of care to an occupier of the development despite the fact there is no contractual relationship between the architect and subsequent occupier.
Schedule-related risk is the risk that the construction takes longer than scheduled. Delay can lead to cost risk, hence this is usually managed by the contract including a clause for liquidated and ascertained damages (LADs) to the client in the event that the contract is delayed. LADs are not penalties, they are pre-determined damages at the outset of the contract based on a genuine calculation of the actual loss the client is likely to incur if the completion date is delayed.
A performance bond is used in relation to construction projects as a means of insuring a client against the risk of a contractor defaulting on the contract obligations. A performance bond is provided by a third party up to an agreed amount.
A parent company guarantee (PCG) is also a form of security that can protect in the event of default on a contract by a contractor that is controlled by a parent company (or holding company). These are particularly helpful when a small contactor is retained who is part of a more financially viable parent company.
Escrow accounts are also used as holding accounts for construction project funds. They are usually set up by a solicitor acting on behalf of one of the parties. The terms of the agreement will specify that the payments must be protected, so as to provide security if payment is defaulted upon.
Contractors and/or designers are permitted subject to an express agreement to exercise a lien or otherwise encumber a property in the event of non-payment and this can only be removed upon payment of the fees outstanding.
At the commencement of the construction project a number of consents and approvals would have been required whether in relation to planning or building regulations. During the course of the works various inspections are undertaken to ensure compliance with the requisite consents/approvals prior to obtaining a completion certificate from the Local Authority and also in relation to health and safety pursuant to the Construction (Design and Management) Regulations (CDM) 2015. The requisite insurance policies must also be in place prior to inhabitation.
Sale of real estate is exempt from VAT unless the seller has opted to tax the land and buildings. Most new-build commercial properties will attract standard-rated VAT at 20%.
If, however, a property is acquired with a sitting tenant, the 'transfer as a going concern' exception will apply provided both parties are VAT registered and hence no VAT will be payable on the purchase price. However, this exemption only applies where the buyer opts to tax the property before the transfer.
Business rates will be payable on the occupation of a business premises, examples of which include:
The domestic rates will be payable to the local council in March of each year in respect of the amount required in the following tax year.
The following reliefs from business rates are available:
Tax is payable on rental income from property as outlined below.
Property Owned by UK-resident individuals
An individual must pay tax on any profit made from renting out property. The amount paid depends on how much profit is made and an individual’s personal circumstances.
Property Owned by a UK Company
A company must pay corporation tax (at the current rate of 19%) on the profit it makes from renting out a property.
Allowable expenses are items which need to be spent in the day-to-day running of the property (eg, letting agents’ fees, council tax, etc).
Allowable expenses do not include ‘capital expenditure’. This includes buying a property or renovating it beyond repairs for wear and tear.
In addition, tax relief can be claimed on money spent on replacing domestic items (eg, beds, sofas, etc). Such items must have been bought for use by the tenants and the item replaced must no longer be used.
The Non-resident Landlord Scheme
A landlord who resides abroad for more than six months of the year must pay tax on any rental income received from a property in the UK. If the landlord is a company or trustee, the rules relating to their usual place of abode apply. The tax is collected using the Non-resident Landlord (NRL) Scheme. The tax can be paid by either the letting agent or tenant.
Capital Gains Tax
CGT is payable by an individual on the disposal of residential real estate in the UK (other than an individual's main residence) in respect of the gain (profit) made at a rate of 28% for a higher-rate tax payer, or a lower rate for a basic rate tax payer. A 20% CGT rate applies for commercial property.
A UK-based company will pay corporation tax at a rate of 19% on the investment gain (subject to any indexation allowance, which now only accrues up to 31 December 2017) on the disposal of a commercial or residential property.
Individuals pay 'non-resident' CGT (NRCGT) at 28% on any (post-April 2015) gains made on UK residential property if they are non-resident for tax purposes.
From 6 April 2019, NRCGT is extended to (post-April 2019) gains in respect of commercial property, albeit with certain exemptions.
The Tax Cuts and Jobs Bill was signed into law on 22 December 2017. This is intended to bolster real estate development and commercial real estate transactions.
Corporations will see a significant tax saving as the top rate of corporate tax has been reduced from 35% to a flat 21%.
Developers can deduct interest expenses for a variety of real estate activities.
Owners of property can make a large capital gain but defer any tax as long as they use the proceeds to buy some other property. Owners of commercial real estate could flip the properties without ever paying any capital gains tax.
Carried interest will allow for taxation at lower capital gains rates rather than ordinary income rates for assets held for at least three years (as opposed to one year).