The US expat’s must-know guide to buying a house in the UK

Americans are currently taking advantage of the weak pound to buy homes in London and around the UK. But there are tax and other financial issues they need to consider.

04 Nov 2019

Martin Heale

Martin Heale

Portfolio Director

Schroders

As one of the world’s great cities London has long been a popular place for people of all nationalities to own a home.

US citizens, in particular, have been among the largest non-British groups of UK property buyers for many years. Recently they have been climbing even higher up the ranks.

In 2018, for example, Americans were in fourth place among foreign nationals buying in London, according to research by property group Knight Frank. This year, though, lured by the combination of a strong US dollar and discounted house prices in key London neighbourhoods, Americans have jumped to second place in the foreign buyers’ league table – behind the Chinese.

Property industry experts see the expansion by some major American companies, including Goldman Sachs – which is in the process of opening a new £1 billion European headquarters in the City, housing 6,000 staff – as a factor in the growing number of American clients coming their way.

Finding the dream British home: UK estate agents vs US realtors

Americans who have never purchased a UK property before should be aware of a number of differences between the UK and US systems of property purchase.

For a start, Americans are likely to be used to working with a “realtor”, who is able to show them most of the properties they might like. Realtors normally work on behalf of both buyers and sellers.

In the UK, though, properties are marketed by “estate agents” and these represent only the seller, and not the buyer.

Buyers have several options. They can contact each estate agent who covers the neighbourhoods they’re considering and look through their listings, or use one of several online portals where most of these listings are consolidated. There is no fee for this as the buyer is doing all of the work and acting for themselves.

Alternatively, buyers can enlist a buying agency who will represent them throughout, advising them on property prices and values, negotiating the price and managing the purchase process. There is a fee for this service which is typically 1.5% – 2% of the purchase price + VAT.

Jo Eccles, Managing Director of leading London buying agency, SP Property Group, says: “The London property market lacks transparency, unlike other global locations, and many of the best properties sell ‘off market’.”

This means the properties are not listed publicly.

“Approximately 40% of the properties we show our clients are off market,” she says. “These are properties which buyers would never otherwise know about.

“London property prices are based on price per square foot values, so in order to most effectively negotiate and achieve the best price, you need price knowledge. Without access to this data, you’re essentially bidding blind.”

Currently 35% of SP Property Group’s clients are either based in America and buying for investment or later use (for example if their children might study in London at some point), or they are American expats living in the UK and putting down roots.

Lining up financial arrangements: considerations for US property buyers in the UK

Alex Ogario, head of Knight Frank Finance’s Private Office in London, advises Americans to consider the financing of their purchase before shopping for right property.

“Generally people want to do the ‘fun’ thing first, which is to go out and find the property of their dreams,” he says.

“The problem with this is that they find the property, offer on it, and the offer gets accepted. And then they’re under huge amounts of pressure to close on it quickly, which most of the time, particularly if they’re American, isn’t that easy.

“What they should do, at least before they make any offers, is to get the financing arranged in principle. This means they can proceed more quickly. It will give them more credibility when they are offering on a property if they can demonstrate that their finance is lined up.”

The time taken between agreeing a sale and completing it can run to months. This often takes Americans by surprise

The time it can take between agreeing a sale and actually closing on the deal can run to months in the UK. Until contracts are exchanged (this is when a deposit of usually 10% of the purchase price is paid by the buyer and a completion date set) the purchase can collapse at any time. This is often a big surprise for Americans.

Tax considerations for Americans in the UK

Stamp duty – the up-front tax that is payable on any transfer of land or property in the UK with a value of £125,000 or more – is often another surprise for many Americans buying UK properties for the first time.

Ogario recommends Americans seek tax and other professional advice early on.

Since 2016, the basic stamp duty rate, which ranges from 2% to 12% (the top rate being charged on properties worth £1.5 million or more) has had an additional 3% levy added where a residential property purchase over £40,000 “is not the buyer’s first home…”. Americans buying in London, for example, who retain a previous home back in the US, would be likely to fall within the net of this higher tax, for example.

Jo Eccles says “For each client we always prepare a tailored outline of their buying costs so they can plan. Stamp duty can be seen as a prohibitive cost, particularly for discretionary purchases, but we advise clients to view it as a one-off upfront tax, unlike in other countries which might charge an annual property tax.”

Americans selling homes in London... may have to pay capital gains tax in the US

The other tax Americans buying in the UK need to be aware of is capital gains tax – not in the UK, but in the US.

This is because Americans living abroad, techcnially described as "US persons", are liable for US taxes. Even if they are tax resident in the UK, and pay their income and other taxes to HM Revenue & Customs, they still need to file tax returns to the US IRS – and they may be required to pay tax on gains on the sale their main residence, wherever it is in the world.

Who's buying in prime central London?

% of all buyers, by nationality

China 9.4%
United States 6.0%
India 4.7%
Russia 4.0%
Hong Kong 4.0%
UAE 3.4%
Italy 2.7%
Saudia Arabia 2.0%
Singapore 1.3%
Germany 1.3%

Source: Knight Frank Research, 2019

Author

Martin Heale

Martin Heale

Portfolio Director

Schroders

Martin heads the Schroders Wealth Management US Team specialising in international wealth and investment management for both US residents and internationally based US clients. Martin has over 25 years’ experience in advising and growing clients’ wealth utilising stock market investments and working in partnership with clients’ other professional advisors.  Prior to joining Schroders, Martin was the Head of Americas at the Royal Bank of Canada Wealth Management International in London and before that was Head of Private Wealth Management for Kleinwort Benson. Martin is a Registered Investment Advisor with the Securities Exchange Commission (SEC) in the USA and holds the Uniform Investment Advisor Law qualification with the Financial Industry Regulation Authority (FINRA).

 

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