Aerial view over Canary Wharf towards the City of London skyline, London, England, Britain Image Credit: Agency

It is no secret that since the 2007-08 financial crisis, it has become markedly more difficult to obtain a mortgage for private property purchases in the United Kingdom. The knock-on effect for many potential homeowners has been a need to turn to renting homes from landlords in the private sector.

The current five million rental homes in the UK represent a combined investment of over £1 trillion (Dh4.81 trillion) and none of them remains unoccupied for very long. This suggests that the current economic climate has created the ideal investment market for overseas buy-to-let investors.

With reported returns of 4 per cent and above against investment in rental homes, it is hardly surprising that buy-to-let forms a major component in many investments and fund management portfolios. New developments and regeneration programmes continue to create modern and easily maintained properties for a sector that has already demonstrated its ability to yield excellent returns.

Millennials are coming

For the first time since Margaret Thatcher’s government of the heady 80s created the opportunity for millions of council house tenants to purchase their own homes, renting is once again on the increase. Over half of the UK’s millennials who already own property are advising their contemporaries to rent, according to a recent poll.

With complaints from a staggering 37 per cent of those polled concerning falling values during the first year, over half of millennial owners admit that they underestimated the cost of ownership incorporating utilities, maintenance and mortgage repayments. Millennials are giving property ownership a thumbs down and demand for rental property is predicted to continue to grow dramatically.

The average annual cost of commuting for homeowners is already around 40 per cent more expensive than that of renters. Developers and investors have not been slow to catch on to the demand either and whole developments of affordable properties are being created with renters in mind as end users.

The lower property prices in the north of the country also offer a level of diversity that isn’t found in and around the capital. Many new developments and extensive rejuvenation projects are creating thousands of homes that are being snapped up by a hungry rental market. If any prospective overseas investor needs an indication concerning the huge potential, it is worth bearing in mind that 46 per cent of the UK’s 21-35 year olds are already living in rented homes.

The so-called “commuter belt” is popular among those who work in the city, but either can’t afford to live there or simply prefer not to. It stands to reason that the further someone lives from the city, the lower the rent of comparable properties is likely to be.

Buying houses and apartments within commuter belts ensures a ready supply of tenants looking for a home as close to their work as they are realistically able to afford.

Transparent tax system

Housing associations and local councils are always seeking to work with owners of realistically priced properties and they also virtually guarantee a never-ending supply of tenants.

Many of the tenants provided from such sources benefit from rent allowances, which also means landlords are in effect assured of a rental income.

The great news for overseas property investors with an eye on the UK is that the country’s tax system is pretty transparent and easy to navigate. In simple terms, anyone who rents out property in the UK is liable to tax, whether they reside in the country or not. The tax authority uses something called the “none resident landlords scheme” to ensure the tax is paid. This stipulates that either an appointed agent of the landlord or the tenant must deduct 2 per cent of the total rental income.

Deductible expenses such as maintenance, repairs, and administration fees are, of course, deducted from the total amount of tax and this is accounted on a quarterly basis. Non-resident landlords can apply to receive their rent without any tax being deducted under specific circumstances including:

• An absence of any outstanding tax and up-to-date tax affairs

• No existing UK tax obligations before the application

• There will be no taxable income (below the tax threshold) during the tax year they apply

• Tax immunity through status such as foreign government heads

• Non-resident landlords may be subject to certain tax exemptions including reciprocal treaties

From Aril 2020, mortgage repayments against buy-to-let properties owned by private landlords will no longer be tax deductible. In fact, starting back in 2017, tax relief on such payments began reducing by 25 per cent annually which means the final deductible allowance vanishes in April 2020.

(Iseeb Rehman is CEO, Sherwoods International Property.)