I wouldn't consider a custom water loop for a computer under £1000, as a good loop for CPU and GPU can go for as much as £300-500 and requires maintenance every 4-6 months or so, not to mention that it can be complicated to set up properly. You
could go for a closed-loop watercooling solution if you want the bragging rights I guess. A closed loop can be anything from £50-150 depending on what you want, for example a
Corsair H60, but will rarely give you better cooling/quid compared to air.
£500 is a slim budget, but I will try to help.
MoBo: Gigabyte GA-P67A-D3-B3
http://www.novatech.co.uk/novatech/p...67A-D3-B3.html
CPU: Intel i3 2100 3.1Ghz
http://www.novatech.co.uk/novatech/p...623I32100.html
RAM: Corsair 2x2Gb XMS3 1600Mhz
http://www.novatech.co.uk/novatech/p...M2A1600C9.html
PSU: Corsair CX 500W
http://www.novatech.co.uk/novatech/p...U-500CXV2.html
HDD: Samsung Spinpoint F3 500Gb
http://www.novatech.co.uk/novatech/p...b/HD502HJ.html
So far, £285 (incl. VAT)
Now, will you need an optical drive? Because those usually go for around £20, leaving around £200 left. Will you need a case? If yes, a nice midi-tower can go for around £50, while a full tower is usually around £70 for a cheap one. That leaves £130-200 for a GPU.
GPU:
GTX 550 ti, £113:
http://www.novatech.co.uk/novatech/p...550OC-1GI.html
GTX 460, £143:
http://www.novatech.co.uk/novatech/p...460OC-1GI.html
R6870, £165:
http://www.novatech.co.uk/novatech/p...79-07-40G.html
GTX 560 ti, £187:
http://www.novatech.co.uk/novatech/p...560OC-1GI.html
Edit: When picking a case, make sure it supports the size of the motherbord as well as the length of the GPU.