LRS & UK property investment - A complete guide for Indian investors

Ah, the great Indian aspiration- education from Ivy League universities, a family holiday in Spain, and owning a stylish apartment in London with a view of the Thames. You're not the only one with the last one on your wish list.

London offers more than just iconic landmarks like Big Ben, double-decker buses, and royal events; it is also a popular destination for those looking to invest in property. And you know what? Indian investors are quickly grasping the concept. In 2023, Indians were ranked as one of the top five international purchasers of London property, as reported by Knight Frank.

Best part? The LRS makes it easier to achieve your property goals. Surprisingly, Indians sent a massive $27.14 billion overseas via LRS in the fiscal year 2022-23. Global investments are clearly becoming more popular.

But before you plan your trip for house hunting in London, let's look at how LRS can be used for UK property investment and why it's a great opportunity for Indian investors.

Decoding Liberalised Remittance Scheme (LRS)

The Reserve Bank of India (RBI) has introduced the Liberalised Remittance Scheme (LRS), which permits Indian residents to remit up to $250,000 per financial year for a range of purposes, including investing in overseas property from India. Since its introduction in 2004, the LRS has significantly transformed investment options for Indians looking to invest beyond domestic borders.

Here's the catch - although LRS allows people to invest in foreign countries, direct property purchases are not currently allowed under LRS. Despite this, Indians can still invest in UK housing using strategic approaches such as joint ownership, investment funds, and indirect structures.

Why UK property? Because who doesn't love tea and crumpets

Here are some compelling reasons why Indian investors should consider investing in UK property

• The London property market has been stable and resilient, with prices staying steady despite economic uncertainty. The strong housing demand makes it a good investment choice.
• Highly sought after locations like Canary Wharf, Kensington, and Battersea provide rental yields of 4-6%, which are significantly higher than the returns from a fixed deposit in your home country.
• Investing in UK property may yield higher returns due to the stronger British Pound and its favorable exchange rate with the Indian Rupee, giving investors a currency advantage.
• When your child plans to study in the UK, owning property can be a smart way to save on housing expenses and take advantage of potential long-term growth in property value and residency benefits.
• Diversifying with the London property market brings a global asset to your portfolio, reducing risks from domestic market changes.

How to use LRS for UK property investment?

Now that we've piqued your interest, here's a step-by-step guide to purchasing London property with LRS

• Jointly investing through ownership
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• Each person covered by the LRS can contribute to a collective investment of up to $1 million per year in UK real estate, allowing a family of four to do so. Families can combine their LRS limits to buy properties for renting or long-term investment. For example, each of the four family members can send $250,000, totaling $1 million, allowing them to buy a London apartment. This method makes it easier to enter the UK property market, especially in areas with high demand and rising property prices.
• Mortgage payments
• Indian investors can use the Liberalised Remittance Scheme (LRS) to finance the down payment for a UK property and then obtain the rest through a UK mortgage. Investors can transfer funds legally for the initial deposit using LRS, which allows yearly remittances of up to $250,000. For example, if a London property is priced at £500,000, you can put down a 30% deposit of £150,000 using LRS and borrow the remaining 70% with a UK mortgage.
• Investing via an overseas holding company
• Several Indian investors choose to set up offshore companies in locations such as Dubai, Singapore, or the UK as a strategic method for investing in UK housing. With this structure, money can be sent through LRS to the company, which will use it to buy property in the UK. This method has many benefits. First, it offers improved tax efficiency, helping investors with financial planning in line with global tax laws. Secondly, it eases mortgage approvals because UK lenders prefer financing properties held by corporate entities over individual foreign investors. Finally, it provides a legally compliant investment structure, making it the top choice for navigating RBI regulations and securing high-value assets in the UK property market.
• UK property funds & REITs
• Indian investors may choose REITs and property funds over buying property directly in the UK because they offer a simpler and legally compliant way to invest in real estate. Investing in REITs allows for property ownership without LRS regulatory restrictions. Thanks to these funds, investors can earn money from rental income and property value growth without the hassle of managing the property. REITs also offer diverse portfolios, lowering risk compared to investing in single properties.

Is investing in UK Property through LRS worth It?

For sure! The UK property market is excellent for people seeking long-term growth, rental income, and a diverse investment portfolio. The Liberalised Remittance Scheme (LRS) has simplified the process for Indian investors to invest in overseas properties, particularly in London, by providing a legal and organised framework for ownership.

Get a head start on your investment planning today with Benham & Reeves! We offer an affordable choice for Indians to invest in overseas housing market and adhere to RBI regulations.