Contributed By Hawkins Hatton Corporate Lawyers Ltd
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.