5 Things You Should Know About Investing in the UK from Switzerland
The UK is set to be the leading investment target for European buyers in 2019, following on from Q3 2018 where European investors made up 40% of the overall market within central London. A third of those investors predict that demand for UK assets will rise in the long-term as uncertainty over Brexit starts to fade. What follows is five things Swiss buyers should know about investing in the UK from Switzerland – from tax implications to the differences in the purchasing process and property market conditions between the two countries.
1. Tax Implications between Switzerland and the UK
In Switzerland, second home owners are liable to annual taxes, which amount to around 1.3% of the purchase price each year. This figure can be broken down into smaller fees including: land tax, tourist tax and wealth taxes. Buyers are also taxed on the estimated rental income of the property, regardless of whether the property is rented during the year.
This changes based on the canton (region) that you invest within but income tax generally doesn’t exceed 40%. In Schwyz for example, the maximum personal income tax rate is 22% (covering a federal, municipal and cantonal level).
Overseas rental income, on the other hand, is exempt with progression in Switzerland – meaning taxpayers pay a lower rate tax and reduce the average tax rate on their income. This means that rental income, maintenance or repair costs will need to be declared in the Swiss tax return to determine applicable tax rates, although any net gain from the property will be exempt from Swiss tax.
While this overseas investment will be subject to foreign tax, Switzerland will avoid double taxation by granting a tax credit, depending on the situation of the investor.
2. Comparing the UK and Swiss Property Markets
As an investment asset, the Swiss property market is not as accessible as other markets across the globe – the most lucrative deals need at least a million dollars on the table, particularly in Swiss city centres.
Rural areas can be more accessible but rental yields are generally too low within these areas to be worthwhile. As with any property investment, location is key, but Switzerland is particularly reliant on having nearby commercial or industrial opportunities to attract the right tenants.
The UK market has a much broader range of assets available – mid-market investments in premium locations such as Birmingham and Manchester are more affordable, considering that the average property in Zurich will cost around 600,000+ Swiss Franc (CHF). The UK market also consistently delivers higher rental yields – around 5% compared to the 2% – 4% experienced in the Swiss market.
Using Zurich as an example, it experienced some of the lowest rental yields of a major European city in 2018 while key UK locations continue to overperform. This is where Swiss investors can capitalise.
3. UK Market Trends
Swiss investors can find enhanced value in the UK by taking advantage of foreign exchange rates and key areas experiencing growth. Out of 155 leading property investors in a recent Knight Frank survey, 21% have the UK as their preferred investment market in 2019, nearly double the year before.
The rental market in the UK is thriving and it’s estimated that by 2023, it’ll make up a quarter of the wider market. Looking further ahead to 2039, it’s expected that renters will outnumber homeowners, consolidating ‘Generation Rent’ as a serious lifestyle choice for many UK residents. Around 300,000 new homes were needed to meet demand as of Q4 2018 – demonstrating the chronic undersupply that the UK is facing.
Affordability in traditional markets is also causing an increase in long-term renters, with 69% of current tenants still expecting to be renting in three years time. This makes a rental property in a prime location a much more competitive proposition, without the low-volume and affordability issues that are plaguing the Swiss market.
4. London Exodus Continues
An increase in the number of people leaving London is highlighting the emerging markets in the surrounding Commuter Belt. ONS data shows that during 2018, London saw the highest number of people leaving in a decade, choosing regional cities such as Birmingham and towns in the London Commuter Belt as their end destination.
According to Countrywide, at the start of the year, Slough was the top destination for tenants moving from London with 46% of homes in Slough being let to London renters.
With such strong employment opportunities and a relatively short commute time into London, it’s no surprise that young professionals working in London are looking to Slough and towns like it as affordable alternatives.
5. Investing in the UK for Longevity
Savvy investors understand that investing for the long-term is typically much more effective than investing in the short-term.
UK property has historically shown that over 15 years, it can potentially double in value – all while providing consistent rental yields. It’s this performance that highlights how UK property can easily fit into a long-term investment strategy for international investors. The longer the property is held, consistent returns can be maximised and supported by natural growth within the market.
This is heavily driven by demand and the quality of amenities surrounding an investment. With so many key investment areas experiencing growth, attracting new waves of tenant demand and still seeing a shortage in supply, overseas investors can identify and take advantage of a location that is likely to deliver over the long-term.
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