110 | Investor Guide to Europe 2014
aCQuISITIon PRoCESS:
KEY STaGES
The general position in the United Kingdom is that any individual
or legal entity, whether resident or non-resident can purchase
property. There are, therefore, no foreign direct investment res-
trictions. Although the following briefly summarises the process
involved in the direct acquisition of property it is often the case in
practice that high value properties (or portfolios of properties) are
acquired indirectly through a variety of different corporate vehi-
cles including through buying shares in a real estate investment
trust (REIT) or investing in units in a property unit trust.
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Marketing
•
The marketing of commercial property is usually carried out
on behalf of the seller by a property agent.
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negotiation
•
Commercial negotiations commence once an interested party
has been identified.
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Until a formal sale contract is agreed, signed and dated
(«exchanged») neither party is legally bound and so there is
flexibility to conduct negotiations without the need to worry
that binding legal commitments may arise unintentionally. This
is the case even if the parties sign «heads of terms» recording
the principal commercial terms of the transaction.
•
A serious buyer may require an exclusivity period within which
to try to agree terms with the seller and lawyers may be ins-
tructed to draw up an exclusivity agreement giving the buyer a
period of time within which to undertake its due diligence and
«exchange contracts» for the purchase.
•
Subject as mentioned above lawyers would usually only get
involved once the seller and buyer (via their respective agents)
have agreed terms.
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Pre-exchange
•
Once terms have been agreed the buyer’s lawyer will inves-
tigate the seller’s title to the property and carry out due dili-
gence. Generally a seller of property is not under an obligation
of disclosure to the buyer and the principle of «caveat emptor»
(let the buyer aware) is adopted.
•
It is also likely that the buyer will instruct a number of other
professionals to advise it on the transaction. By way of example
surveyors will almost certainly be asked to carry out condition
surveys of the property and any buildings on it.
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Sale contract
•
The sale contract will be negotiated by the parties’ lawyers and
will contain all the terms agreed between the seller and the
buyer including any special conditions required to deal with
matters revealed by the buyer’s due diligence.
•
The buyer become legally bound to complete the purchase
and the seller to sell, subject to any conditions specified in
the sale contract, once the sale contract has been exchanged
(formally entered into).
•
Typically a deposit of between 5% and 10% of the purchase
price is payable by the buyer on exchange. If the buyer fails to
complete the purchase then the seller may retain the deposit.
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Transfer
•
The sale of the property will be completed on the date speci-
fied in the sale contract by way of completion of a separate
document known as a «transfer». Sometimes completion will
take place on the same day as exchange although often there
is a gap between exchange and completion.
•
The balance of the purchase price will be paid on completion.
•
The transfer needs to be registered at HM Land Registry. Al-
though as between seller and buyer title to the property passes
on completion the buyer will not become the legal owner of
the property until it has been registered as proprietor at HM
Land Registry. It is the responsibility of the buyer’s lawyers to
ensure that this happens.
TaX
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Direct acquisition of a property
•
The acquisition of a property (whether freehold or leasehold)
gives rise to stamp duty land tax (SDLT).
•
SDLT is payable by the buyer/tenant (as appropriate).
•
On a freehold acquisition the rate payable is a percentage of
the purchase price – 4% on acquisition of commercial property
over £500,000 and up to 15% on purchases of residential pro-
perty; there are specific rules for calculating the SDLT payable
on the rental element of new leases which have regard to the
«net present value» of the lease.
•
From 1 April 2015 SDLT will cease to apply to transactions invol-
ving land in Scotland and will be replaced by the land and buil-
dings transaction tax (LBTT). The LBTT rates have not yet been
announced but it is known that it will be a so-called progressive
tax with a nil rate band and at least two other thresholds above
that.
•
Devolution to the Welsh Assembly of SDLT on land in Wales is
currently also under discussion.
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Value added tax (VAT) which is a form of sales tax may be
payable in addition. The default position is that the sale or
purchase of property in the United Kingdom is not subject to
VAT however a commercial property owner may opt to tax its
property so as to treat any supplies it makes in relation to the
property as being subject to VAT. The VAT rate is currently set
at 20%. Even if a property has been the subject of an option to
tax it is possible to treat its sale as falling outside the scope of
VAT if it is let to tenants provided the buyer continues that let-
ting business, also opts to tax and notifies the United Kingdom
tax authorities of such option (a so-called transfer of a going
concern).
•
The sale and purchase of residential property is not subject to
VAT.
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acquisition of shares in a company holding a
property
•
SDLT does not apply to the acquisition of shares in a company
owning a property as opposed to a purchase of the property
itself. The rate of duty on the transfer of shares in a United
Kingdom incorporated company is currently 0.5%.
•
VAT is not payable on a share purchase.
