Unlike many other countries (for example the United States) the UK is actually a very small space geographically considering how many people live here. Space to build new housing, particularly in urban areas is extremely limited. This has the simple effect of limiting the supply of new housing that comes on to the market

With a growing population demand has never been higher. Many people cite the large numbers of immigrants moving to the United Kingdom from Eastern Europe as having a huge effect on the demand for housing. Even if these migrant workers do not buy, they still need to live somewhere, namely in rented or buy to let accommodation.

The net affect of this increase in demand and limited supply will obviously push prices higher. Obviously the higher property prices move, the less affordable housing is to those with low incomes. However prices have not fallen? The reason may be explained buy the recent boom in buy to let property purchases. Many individuals on relatively high incomes have entered the buy to let market and become landlords. More often than not their prospective tenants are those on low incomes that simply can’t afford to buy.

As can be seen there are many reasons why the housing market may not be destined for a crash. Although a slowing economy may have an effect the fundamental indicate that a crash may not be the certainty that some people feel is just around the corner.

United Kingdom, and particularly London, property has for many years been a popular mode of investment for foreign investors and indeed, at one recent time, it was estimated that some 60% of London residential property was owned by offshore companies. London real estate has also performed well in investment terms. There are no restrictions on the ownership of real estate in the United Kingdom by non-residents and, other than the matters which influence the choice of the property itself, perhaps the most important factor to be taken into account is the impact of the various forms of taxation which will be encountered. These can be divided into direct and indirect taxes:

Stamp duty is levied on the purchase price at rates, which range from 1% for a property costing £125,000, to 4% where the purchase price exceeds £500,000.

Council tax is levied by the Local Authority. The rate is set annually and depends on the locality, the size of the property and its value.

The United Kingdom levies three main forms of direct taxation:

• Income tax – This tax will not apply to an owner occupier.

• Capital gains tax – Non –residents are exempt from capital gains tax in respect of property held only as an investment.

• Inheritance tax – For which any investor holding assets in the United Kingdom is potentially liable. Fortunately it is avoided easily by the purchaser who has a foreign domicile.

Where the value of chargeable assets passing on death exceeds £285,000 the excess over that figure is taxed at 40%. This threshold will increase to £300,000 for the year 2007/8, £312,000 for 2008/9 and £325,000 for 2009/10. Where the investor had a foreign domicile, only U.K. property is taken into account in the calculation and it may be necessary to take into account the value of gifts of U.K. assets in the seven years preceding death.

If the property is purchased in the name of the individual there can be no doubt that its value will be assessed for inheritance tax purposes on his death. If however it is purchased in the name of an offshore company, the investor does not own an asset in the U.K, but the shares in a foreign company, which, in his circumstances are not chargeable with inheritance tax. If the company is incorporated in a tax-free jurisdiction, such as the British Virgin Islands, the final result will be that the property passes tax free to the heirs.