June 2016 through until the present day may well be looked at with hindsight as the golden age of the love affair between the Israeli investor and the UK real estate market. It began with the fall in the British pound following the UK’s decision to leave the European Union. This, contrasted with the seemingly unassailable strength of the Israeli shekel, has made the prospect of owning an investment property in one of the many real estate projects scattered throughout the home of Big Ben uniquely affordable.
Off of the back of the attractive exchange rate, projects selling UK real estate to the Israeli investor have evolved from being side ventures of Israel centered developers, to being their crown jewel. New and exciting structures of investment, uncommon in the UK, have been embraced, with developers asking their English legal teams to adapt the classic Israeli “kevutsat rechisha” to work within the boundaries of English property law. This provides Israelis with a familiar and secure investment framework. Although incorporating a slice of Israel into projects, many developers are still seeking to provide a classic British full tenant service experience post-delivery. The theory is, once the investor signs the contract, they can simply sit back and allow the developer to take care of the rest.
Perhaps the most attractive thing to investors is that London has emerged with property values almost unscathed not only by Brexit, but also by the more recent coronavirus epidemic. London has cemented its reputation as the modern Babylon, a resilient city, a financial hub, and a world centre that incorporates a timeless romantic beauty.
Although the attractive rate of exchange seems to be here to stay for now, change is on the horizon. The UK government announced in the March 2020 budget that a new 2% surcharge for overseas buyers on the rate of purchase tax (what we call in the UK Stamp Duty Land Tax, SDLT) would be added to SDLT already payable by UK resident purchasers for purchases that do not complete before 1 April 2021. The 2% increase is significant. Although we will always advise clients on ways of making their purchase as tax efficient as possible, the bottom line is that this surcharge will catch most overseas investors.
For first time buyers, who already pay a reduced rate of purchase tax, the effects of this surcharge will still be noticeable but less so. As such, for first time buyers priced out of the Israeli property market by inflated local prices, high mortgage rates and banks demanding unrealistic deposits, the UK remains appealing as a place to get on the first rung of the international property ladder. It is also possible that a purchase in the UK would not compromise rights on reduced purchase tax payable on first purchases in Israel. Notwithstanding an Israeli legal professional who is able to advise on Israeli purchase tax should be consulted and full local legal advice obtained before entering into any local transaction.
Our advice to clients is that if you are interested in investing in the burgeoning UK property market, residential or commercial, the time to move is now, and certainly before the new surcharge comes into force. The world is in flux and, in many ways, faces unprecedented instability. As the old English saying goes, there is nothing as safe as houses and bricks and mortar neverwinter.
Article written by: Joshua Felberg