December 15, 2020
Overseas investors in Scottish property are facing a potential window of opportunity!
And that is to take advantage of the fall in sterling – before a potential new 2% LBTT levy is brought in by the Scottish Government.
As it stands, Land and Buildings Transaction Tax (LBTT) has been reduced until April, with buyers not having to pay LBTT on properties up to the value of £250k.
That, combined with the fall in sterling could be the encouragement overseas Scottish property investors are looking for to make the leap.
However, in April, all that might change, with the temporary LBTT holiday coming to an end, and the potential of Scotland following England’s lead with the 2% tax levy being introduced for foreign investors.
NOTE: There are whisperings the Scottish Government may decide to extend the current LBTT arrangements beyond 31st March, perhaps for another six months, in a bid to further boost the economy.
This will mean overseas buyers completing on property transactions from April next year could end up paying £13,100 (6.5%) on a £200k buy-to-let property – that’s a significant increase compared to the £8,000 they’d pay today for the same property.
TIP: This calculator from Revenue Scotland can be used to work out your tax on any potential property buys.
As one half of Scotland’s only estate agent for landlords, I wanted to explore what this might mean for foreign investors interested in buying property in Scotland, and what this window of opportunity from the fall in sterling looks like.
Competitive currency entices overseas Scottish property investors
All of the ongoing uncertainty over a Brexit deal, and Covid-19, has meant that sterling has stayed relatively low against the dollar, making Scotland (and the UK in general) more attractive for overseas investors.
This has left some commenting that even with the increase in stamp duty (and potential increase in LBTT in Scotland], we may still see a ‘Chinese buying boom’. Domenica Di Lieto, CEO of Emerging Communications, recently told Buy Association:
“The fall in sterling more than makes up for the [stamp duty levy], and the UK still compares well with overseas buyer tax rates in competing locations, such as Hong Kong (15%), Canada (between 15% and 20%), and Singapore (20%).”
She added that a considerable number of property investors from China seem undeterred:
“Smart property sellers are keeping up engagement and sales momentum with Chinese buyers. With only essential shopping and work travel taking place at the moment in China, buyers are more receptive than ever to receiving sales propositions.”
And on that rather encouraging news, we’re left wondering…
Will Scotland bring in the new 2% surcharge?
Right now, overseas investors – who have been turning their attention to Scotland after being increasingly discouraged by London’s high values and low yields – are waiting with baited breath to see whether or not Scotland follows suit with the new 2% tax levy on foreign investment.
After all, with its affordable properties, good capital growth and high rental demand, Scotland has become an attractive option for foreign investors, with a huge potential for returns.
However, it’s fair to say that with the tax differences between England and Scotland (both LBTT and Additional Dwelling Supplement being higher in Scotland), it could help to even things out a bit if Scotland opts against taxing foreign investors that extra 2%.
And if Scotland does follow England, will that really be enough to put off overseas investors? Perhaps not.
Of course, anything I say here will be purely speculative, but there are some interesting opinions floating around at present, including from DJ Alexander boss, David Alexander, who was recently quoted in The Scotsman saying:
“I realise more moderate members of the Scottish Government are – understandably – motivated by concern that too much overseas money coming into our property market would give an unhealthy boost to prices which would financially prejudice first-time buyers, particularly in Edinburgh and other hot spots.”
“Having said that, overseas buyers (for whom property is a long-term investment) tend to be welcomed with open arms during those periods when the market is experiencing a downturn and vendors find it difficult to shift their homes. Let’s not forget this overseas influence is (or at least was) a vote of confidence in the wider Scottish economy.”
NOTE: We’ll be updating this article when we hear one way or another.
Advice from the property pros
Overall, it’s worth me stating again (for the record) that the property market in Scotland has remained strong, and despite Brexit, it’s still as hospitable to overseas investors as ever. In fact, we’ve recently helped multiple overseas clients invest in Scottish property.
One of the easiest ways to smooth the transition, and get a fuller picture of the exact rental income you can expect before investing, is to buy a property with the tenant already in place.
As the tenant is already living there, buying a tenanted property eliminates the hassle of having to make your property compliant and tenant-ready, maximises your cashflow, and allows you to receive rental income on Day 1.
One of our clients – based in Hong Kong – has now purchased two tenanted properties this way and is looking for more opportunities, having recognised the benefits of buying with a tenant already in place.
Within our database, and from the clients we’ve helped to buy Scottish properties, we have a firm belief that buying property with instant rental income is the way forward when working with international clients. Check out more tips for overseas Scottish property investment.
TIP: Another good way to invest in Scottish property is to purchase more than one property and take advantage of Multiple Dwellings Relief, so you would not have to pay as much ADS (Additional Dwelling Supplement), as outlined in this blog.
One last thing…
Having read over the weekend that the stamp duty holiday in England may be extended further, it only makes sense for Scotland to follow suit, potentially extending even further this window of opportunity for overseas Scottish property investors.
But again, there’s nothing concrete at the moment, so please take this article as a snapshot of the moment, and a commentary on potential changes.
I do have faith that overseas Scottish property investors won’t be discouraged over the long term if Scotland does introduce the additional 2% tax levy, but for the moment, it may be worth taking advantage of the fall in sterling and investing in property now.
If you would like to learn more about investing in tenanted UK property from overseas, or how we can help, feel free to get in touch with us today for a no-strings chat and to explore your options.
We would love to hear from you!
Written by Ross MacDonald, Director of Sales & Co-founder of Portolio
Get in touch on 07388 361 564 or email to [email protected]
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