OVERSEAS INVESTORS IN SCOTLAND

The demand for residential properties in the University cities of Scotland remains very strong with most landlords continuing to enjoy good occupancy rates and capital appreciation. With popular areas of Edinburgh and Glasgow always in demand from owner-occupiers and tenants. Generally, popular areas of Edinburgh have higher rents and better capital appreciation than other cities across Scotland. Also, Edinburgh’s strong Airbnb sector is now second only to London in terms of average revenue per room let. During the month of August, you can usually multiply your rent up to 3 times with increased demand due to the Edinburgh festival. We often also see a spike in rental prices during the six nations (February to March) and also over Hogmanay (New Year).

It is important Investors are aware of the new legislation regarding renting a property in Scotland (private tenancy reform). The main area to focus on is tenants can now give landlords 28 days’ notice to leave a property and you have limited grounds to evict a tenant. So if you are looking for long term rental returns you need to choose your properties and type of tenants carefully.

Overseas buyers should consider:

  • Land and Buildings Transaction Tax (LBTT) and Additional Dwelling supplement (ADS) on the purchase of a property.
  • Income Tax when they receive income from the letting of a property.
  • Capital Gains Tax (CGT) on the sale of a property. This varies depending on what vehicle the property is purchased through.

Purchasing a Residential Property in Scotland

An overseas buyer purchasing a Scottish property will need to pay LBTT and ADS. No LBTT is payable on purchases of up to £145,000 and ADS is also payable at 4% on the full purchase price on all properties other than your main home. The rates of LBTT are then as follows:

• Above £145,000 to £250,000 – rate of 2%
• Above £250,000 to £325,000 – rate of 5%
• Above £325,000 to £750,000 – rate of 10%
• Over £750,000 – rate of 12%

LBTT is charged with reference to the chargeable consideration that falls within the relevant band. So, for a property with a purchase price of say £300,000, the first £145,000 is charged at 0%, the next £105,000 at 2% and the remaining £50,000 at 5%. The total LBTT payable would be £4,600 plus 4% x £300,000, £12,000 ADS total £16,460

On properties purchased in companies (over £500,000), there may also be ATED (‘Annual Tax on Enveloped Dwellings’) charges to consider. Income received from the letting of a property held within a company will be liable to UK corporation tax at a flat rate of 19% (from 1 April 2018). Any gain realised on the disposal of a residential property would also be liable to corporation tax (rather than CGT).

Letting a Residential Property in Scotland

An overseas buyer who receives income from letting a residential property in Scotland may have income tax to pay on the rents received. The assessable income will simply be the difference between gross rents and allowable expenditure. Allowable expenditure will include letting agent fees, property repairs, property insurance, some or all of the interest payments on a loan, etc.

The assessable income is then taxed at the UK rates of income tax. Nationals of European Economic Area countries (including UK nationals living overseas) are entitled to the UK personal allowances.

It could be that income tax is payable on the same source of rental income in both the UK and overseas. Where this is the case, it is likely that a credit will be received for income tax paid in the UK against tax due on the same source of income overseas. However, the terms of the relevant double tax treaty would need to be consulted with a tax advisor in your country of residence.

If you are interested in using our property investment acquisition services you should get yourself registered as a client and you will be required to go through all the necessary money laundering and ID procedures. We will require to know the source of funds and will need to see copies of your bank statement(s), showing cleared funds.

We may also need evidence of how the funds were accumulated. Once all the formal checks have been made, you will be appointed one of our acquisition consultants. If you require specialist advice and commentary on what and where to buy in Scotland. This service will normally involve viewing the property on your behalf and advising on what levels to make offers. For the most experienced investors, we can offer an execution-only service. Once you become an established client of our firm we can introduce you to “off-market” fixed price properties.

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