Are Rental Properties the Best Investment in the UK Market?
The UK has a growing property development market. Those looking to invest in the UK contribute positively to the economy. But how can one increase their capital and accumulate long-term financial stability by investing in the property market?
According to Forbes, October has noted a significant increase in the average cost of the properties coming into the market. A 0.9% increase in prices compared to the previous month has led the asking price for properties across the UK to a record high of £371,158. However, the London property market saw the lowest annual price growth of only 8.3%. Dwell Rich offers esteemed investment services by introducing our clients to the best market trends and safe and profitable investments.
As of October 2022, property investments are more reliable and profitable than ISA, bonds, and shares. A comparative analysis between these investments can be seen below:
The Risk vs. Return Phenomenon
Bonds are relatively safer with low associated risk factors. Bonds are also easier to purchase and sell; however, your profit can be limited to as low as 1% due to the low return rate based on inflation. Shares, on the other hand, can be profitable, but the associated risks are very high due to the unreliable nature of the market.
The return rate on rental properties is often higher than that of bonds and shares. In addition to the monthly cash flow, your property value will increase with time. The latest trends show that rents are expected to grow 10% annually. The risk of a total loss of money and depreciation in the asset’s value is also relatively lower in real estate investments.
Income Tax Returns
Most of the bonds are taxed except a few government ones. If you choose to buy a taxed bond, you will have to pay a 20% tax on the interest income received by the bond. If you decide to sell the bond before its maturity, you will also have to pay a 5% tax on the capital gain.
Simultaneously, property investments offer better tax loopholes and breaks. According to the UK Government’s tax laws, if you are buying your first house, you will be exempted from paying the Stamp Duty Land Tax (SDLT) if the property is worth £425,000 or less. The UK also has a tax relief called Private Residence Relief that allows a person not to pay the Capital Gains tax when selling their house in light of a few conditions.
Growing Inflation
Bonds mostly offer a fixed amount of return rate. According to the UK Parliament’s report on the Rising Cost of Living in the UK, due to the growing inflation, these rates can often decrease the final profit value earned by the investor. However, properties and rentals only appreciate in value with the growing inflation.
The Office for National Statistics reported in its UK House Price Index: July 2022 that the average house price has increased by £39,000 compared to last year. The higher maintenance, labour and material costs also serve to appreciate the property‘s value.
Benefits of Capital Gain and Rentals in the UK Market
The acquisition of properties has decreased due to high prices, and more people are seeking to rent properties. The Times reports some of the benefits that capital gain and rentals can provide to you in the UK market.
You will receive a monthly cash flow of income from rent
You can insure the property against damages or legal costs.
Your property‘s value is expected to appreciate with time, increasing the chance of capital gain.
The ROI in rentals is greater as compared to selling your property.
Tax Charge for Non-Residents
The tax charge for non-residents of the UK on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If and when the tax charge is limited in this way, they won’t be given any personal allowances against other income. However, as a non-resident of the UK, all the tax that you pay on your income cannot be more than:
The amount before deduction of any personal allowances; the amount of tax that would be chargeable on income except ‘disregarded income.’
The amount of tax deducted at source (TDS) from the disregarded income.
Conclusion
Real estate and other property investments can generate significant returns due to the appreciation in their value. If you are looking to increase your annual income and invest in long-term assets, you should invest in the UK’s property market. Feel free to reach out to Dwell Rich if you are interested in knowing more about the market and seeking professional assistance.
Why Should UAE Residents Invest in the UK?
Are you looking for a smart investment opportunity that can provide you with both short-term financial gains and long-term benefits? Well, look no further than the thriving UK real estate market!
The UAE property market has been on a downward spiral for years, exacerbated by the pandemic. However, across the pond, the UK property market is thriving, offering investors exceptional value and ample opportunities to cash in. This makes it a safe haven for investments.
Office space is still the most in-demand real estate type in the UK, according to a recent Savills survey. Investors are particularly interested in purchasing prestigious assets in key commercial areas. The analysis forecasts a recovery to pre-global financial crisis levels for the average office-risk premium above risk-free rates. In mainland Europe, rental indexation is anticipated to serve as an efficient inflation hedge, and the lack of high-quality office space is anticipated to fuel further market rental increase in 2023.
The possibility for capital growth is one of the main advantages of investing in UK real estate. With an average annual price increase of 13.6% in August 2022, the UK real estate market has experienced tremendous expansion compared to the past years. This has produced a stable investment environment.
The UK has a sizable and vibrant rental market, and demand for homes there is consistently high. Rental returns often range around 5% to 6.3% depending upon the region, giving investors a steady stream of income. As of 2022-2023, the annual rental growth rate for investments in residential and commercial properties has been mixed within various regions in the UK. While London and the South East are experiencing a decline in annual growth, regions like the North East, Wales, and Scotland have witnessed an increase in their annual rental rate of growth.
Despite the tough economic conditions, the UK’s real estate market has demonstrated remarkable tenacity and robustness in the face of the ongoing COVID-19 pandemic. The property prices have consistently been on the rise. Therefore, channeling investments towards UK property can yield substantial returns in terms of stable rental income, as well as the prospect of capital appreciation in the future.
Moreover, foreign investors enjoy equal treatment under UK law, and as such, they face no legal or regulatory constraints when seeking to invest in the country. In fact, foreign-owned entities are treated equally to their British counterparts when it comes to investing. Nonetheless, both foreign and UK-based investors must comply with competition law, and if foreign investors aim to acquire large UK entities, regulatory approval may be necessary.
All in all, investing in UK property from the UAE is a smart move, as it offers a golden opportunity to secure your funds in one of the world’s most stable and profitable investment classes. With a positive economic outlook, promising rental returns, and an advantageous exchange rate, there is no better time to seize the moment and capitalize on the considerable benefits.
