UK Buy to Let: A Guide for Nigeria Investors

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UK Buy to Let Guide for Nigeria Investors

Amidst the COVID-19 pandemic, the Nigerian property market suffered following an economic downturn that witnessed many job losses and salary cuts. This lowered the incentive to invest and resulted in a significant decrease in the overall ROI (return on investment). In contrast, the UK property market remained relatively stable and has since become an appealing alternative for property investment.

The tenacity of the UK housing market has been exacerbated by the ongoing supply-demand imbalance, where a high rental demand ensures house prices are set to continue to grow over the next five years. Forecasts show that by 2027 rental growth will hit 15.9%, whilst house prices are set to rise by an estimated 8.9%.

It is no wonder, then, that Nigerian investors should be drawn to UK property investment – it provides the perfect opportunity to possibly make meaningful gains whilst diversifying your investment portfolio. With no need for residential status (assuming you don’t intend to live in the property), the process can be straightforward once you have a good grasp of the in and out.

This guide aims to give those living within Nigeria considering investing in the UK buy-to-let property a brief overview of the process alongside some of the costs involved. It is important to consider consulting a financial expert before undertaking any investment. However, as individuals’ wants and needs vary, making a more informed decision will lessen the chance of running into any pitfalls.

What should Nigerian investors know?

An international buy-to-let mortgage is one of the first things you will need to acquire as an overseas investor. This can be attained through a specialist lender who will help you find the best rates.

International investors will usually be subject to stricter background checks which will entail submitting varying levels of documentation. The agent you purchase your property through will carry out such checks alongside banks and solicitors.
You will need to provide proof of identity (passport or driving license, for example) as well as proof of address (such as a bank statement) as well as your source of funds (payslips, tax returns) as the standard form of documentation.

Ultimately, investing in UK property from abroad will be worth seeking trustworthy partners to work with to ensure your property investment journey runs as smoothly as possible.

Attaining a buy-to-let mortgage will involve working with an array of solicitors, banks and the agent handling the process. So it will be helpful to conduct research beforehand to ensure confidence and avoid failure.

Depending on the location, UK property can boast up to 8% rental yields–especially with property outside of London. This can be particularly appealing to Nigerian-based investors – but it is vital to consider the costs involved that international investors will be subject to when investing in UK property:

Stamp Duty Land Tax (SDLT)

Upon purchasing a property within the United Kingdom, each investor will be subject to the Stamp Duty Land Tax (SDLT) which operates via a progressive tax system. This means that international buy-to-let investors will be subject to fluctuating tax rates depending on certain portions of the property price and the current SDLT rate.

Any non-resident investing in UK property will have to pay an additional 2% surcharge on top of the standard SDLT rate. This standard rate will vary depending on the property value too. For example, at the time of writing, property purchased for between £250,001 to £925,000 will be subject to a stamp duty tax rate of 5%.

However, first-time buyers will be granted a discount – whilst those purchasing an additional property will be taxed at a higher rate. The type of property purchased will also alter the amount of stamp duty tax you will be required to pay – for example, residential units will be different from commercial or mixed-use properties.

Stamp Duty Land Tax must be paid within the first fourteen days of purchasing the property. It is recommended that you use a solicitor during the purchasing process as they may be able to find any stamp duty relief that you may be eligible for.

Capital Gains Tax (CGT)

As a buy-to-let investor from overseas, it is crucial you understand the entire property investment process from beginning to end. When you sell your investment property in the UK, you will be required to pay a Capital Gains Tax if any profit has been made on the asset.
This tax is determined through the property’s sale value being subtracted from the initial purchase price – the exact amount you pay will change depending on an array of factors, such as the investors’ income.

For example, Basic-rate taxpayers will be expected to pay around 18% Capital Gains Tax, whilst higher and additional rate taxpayers can be expected to pay up to 28%.

On the other hand, if there is a loss on your initial investment purchase, you can carry it forward and deduct it from any capital gains you may make. It is also worth acknowledging that each individual is granted a standard rate allowance of £12,300 which means that the first £12,300 on any gain made when selling the property will be exempt from the Capital Gains Tax.

Non-Resident Landlord Scheme (NRLS)

Perhaps an important distinction for any Nigerian-based investor interested in investing in UK buy-to-let is the Non-Resident Landlord Scheme – this relates to any individual who spends more than six months outside of the UK in any given tax year.

Any international investor – including those in Nigeria – is automatically enrolled on the scheme, which helps to ensure that income tax is paid solely on the UK property as opposed to any additional domestic property the investor may also own in Nigeria. This is helpful as it prevents the possibility of any form of double taxation occurring.

However, this does not mean the UK investment property won’t be subject to taxation – as mentioned above, it is vital to consult a financial expert to gain clarity and understand your individual needs. This can lessen the prospect of your investment journey running into any bumps and help you make some long-term gains!

Read Also: How to invest in the Nigerian Stock Market as a Beginner

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