Initial advice to a US client buying property in the UK

Welcome to The Brief. This month we provide an overview of tax and structuring advice given to a US client buying property in the UK.

The Brief

We were recently instructed on the purchase of a London pied a terre for a CEO client based in the States. As is commonly the case for US clients navigating a purchase in the UK for the first time our initial conversations and advice centred around tax, structuring and process. The key questions asked by our client on this occasion are set out below.

Executing the Brief

We advise a large number of US based clients on their UK property acquisitions, so this is familiar ground, and we were able swiftly and concisely to address these four points prior to getting into the nitty gritty of the transaction. Taking each point in turn:

1. Is there a wealth tax on buying / owning UK residential property? We explained that save in respect of residential properties that are owned through companies or other structures and do not benefit from an exemption, there are (currently) no annual wealth or value taxes on properties in the UK as they have in the US. Instead there is Stamp Duty Land Tax (SDLT), a one off tax paid by the buyer on completion of the purchase, the exact rate of which will depend on the circumstances of the buyer (namely whether or not they live here and what other interests in residential property they hold globally).
2. Is it relevant that I hold property in the States in a limited liability corporation (LLC)? Our client owns a property in the States and has several LLCs so the short answer on this occasion was no. The fact that the property was not owned by the client saved him having to pay the additional 3 per cent rate of SDLT but, as with most short answers from lawyers, it was delivered with caveats. Most importantly the entire legal and beneficial interest in the US property had to be owned in the LLC: if our client retained any beneficial interest in the property then the additional rate of SDLT would still apply. There is also the local tax position to consider, and we worked with the client’s local advisors to ensure the UK purchase arrangements did not adversely impact the home arrangements.
3. When am I committed to the purchase? We clarified that neither seller nor buyer are legally committed to the purchase until contracts have formally exchanged, so agreeing commercial terms is the first step (a big step, granted). Contracts will exchange, typically, once the buyer has conducted full diligence, which usually involves a building survey and legal due diligence. This can take anything from several hours (if the parties are very well organised and everyone brings a can-do attitude) to several weeks or even months. We reassured our client that whilst the system is something of a double-edged sword (as on the one hand it gives a buyer time to review their decision and carry out proper checks on the property, but on the other it leaves room for gazumping and changes of heart) he was in excellent hands as we had a great relationship with the seller’s agent and lawyers so had every chance of good, clear communication and timely progress which are key to keeping deals on track.
4. Can I rely on the agent? The answer was yes but we explained that the agency model works slightly differently here (although it is changing fast with a marked shift towards a broker model, as in the US). Traditionally we have estate agents, who work for the seller, and buying agents who work for a buyer, either carrying out a search function, or enlisted to carry out negotiations for a property that a buyer has identified. Our client did not have a buying agent, and we reassured him that a buyer does not need to appoint a buying agent, particularly given he had already found a property and agreed a price, but it is important to understand that the estate agent’s primary role is to secure the best terms possible for the seller. We were happy to help guide him through this process.

The debrief

Our client is now the owner of the property, and we continue to see a welcome stream of purchasers from the US, drawn in particular to prime central London and bucolic bits of the countryside. Between the US and here there are marked differences in the conveyancing process and the way in which property ownership is taxed, and it’s helpful to take sufficient time at the outset to ensure these differences are discussed and understood.

For more information on buying property in England and Wales please refer to our buying guide, our summary of SDLT and LLC considerations for US buyers and our longer general tax considerations article.

We are always happy to discuss the conveyancing process and how to manage a transaction.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024