The ins and outs of buying a house in the UK

Location, location, location

The first step when buying a property in the UK is to decide WHERE you want to buy a property.

Location is everything in the UK.  For instance, it determines:

• Your public transport options;
• Your local pub;
• Your local GP; and
• What schools your kids will go to.

Broadly, all children in England between the ages of 5 and 16 are entitled to a free place at a state school.  State schools have school catchment areas.  This means if you want your children to get into a good state school, you would have to live within the catchment area of that school.

Public and private schools, which you pay for, work differently.

Estate agents

In the UK, estate agents are responsible for almost everything related to property sales.  Whether they are acting on behalf of the buyer or seller, it is the estate agent's responsibility to provide honest and informed guidance that is fully aligned with their clients' needs.

A sole mandate means you authorise only one estate agent or agency to market your property. An open mandate means that multiple agents or agencies will be able to market your property.

Freehold vs leasehold

In the UK, you can either buy a freehold property or a leasehold property.

When you buy a property freehold, you own the building and the land it's on until you decide to sell it.  By contrast, when buying a property leasehold you own only the building (not the land it's on) and only for a set number of years (say, for 125 years).

Flats are normally sold as leaseholds so that there’s a structure for ownership of the building as a whole and a mechanism for repairs and maintenance to be carried out. The value of a leasehold flat diminishes as the lease gets shorter.

Joint tenants vs tenants-in-common

Under joint tenancy, both partners jointly own the whole property, while with tenants-in-common each owns a specified share.

If you are buying a property with your partner, joint tenancy may be the better option. Joint tenancy ensures that when one owner dies, their ownership of the property passes automatically to the other owner. This is called the ‘right of survivorship’. This process also avoids probate and inheritance tax (IHT) issues.

By contrast, with tenants-in-common, you get to decide who inherits your share of the property. The arrangement is well suited to people with children from another marriage, unmarried couples, siblings or business partners buying together. These people are less likely to want the co-owner to inherit their estate.

This topic was discussed in more detail in our previous article - Joint accounts – how are these treated in different countries?

Getting a survey done on a period home

Usually, you either buy a ‘new build’ or a ‘period home’.  New builds tend to be more energy efficient but often have smaller rooms while period homes have more character but need more maintenance.

A period home, generally, refers to a property that was built before the First World War. You'd have heard the terms 'Victorian', 'Edwardian' and 'Georgian' when people talk about period properties.  This refers to the ruling monarch when a property was built.

When buying a period home, it is usually recommended to have a house survey done by a chartered surveyor, regulated by RICS (the Royal Institution of Chartered Surveyors).  They will make you aware of any defects and damage which you might have missed, so you can understand the costs of any required repairs before you commit to buying.

Should I buy the property in my name or a structure?

UK land held by non-residents has been a particular target of tax changes in recent years.  The result of this is that many of the historic advantages, previously offered by offshore corporate and trust structures, no longer exist.  Indeed, ‘structuring’ has the potential to make the tax position worse.

Tax is therefore a very important consideration when buying property in the UK.  This is a specialised field and formal advice should always be obtained when buying UK real estate.  For this article, we merely touch on a few considerations concerning residential property.

Ways to reduce IHT liability

There is very little scope to use ‘structuring’ to mitigate tax exposure.

In light of this, holding UK residential property in your name is generally the most tax effective.

Generally, there are two options in which you can mitigate your IHT exposure concerning UK real estate.

• Firstly, you can buy the property by way of a mortgage.  The mortgage must be used to buy the property and secured over the property. Speak to your banker should you have any questions,
• You can also take out life insurance to cover your IHT liability.

A UK will

We usually recommend that our SA resident clients have a separate will, governed by English law, dealing with their UK real estate.  The main reason for this is to assist with winding up the client’s estate when they pass away.