Non-residents to pay CGT on UK home sales from 2015

    Capital Gains Tax will be imposed on foreign-owned property sales in the UK from April 2015, but industry experts say the move will make little difference to the market. From April 2015 foreign property investors will have to pay Capital Gains Tax on UK property sales, it has been announced. Even so, some industry experts believe the move, which was widely forecast, will make little difference to the overseas property sector.

    UK Chancellor George Osborne announced in today’s Autumn Statement that from April 2015 Capital Gains Tax (CGT) will be levied on future gains by non-residents who sell residential property in the UK. The move will help prevent a market bubble developing in the London market and recoup extra tax revenue. UK residents pay CGT at 18-28% on proceeds from the sale of second homes. A consultation on how best to introduce the move will be published in early 2014.

    Mr Osborne says, “Britain welcomes investment from overseas but it’s not right that those who live here have to pay CGT, but those who are non-residents do not. From April 2015, non-UK residents will have to pay CGT on property in Britain, including selling of that property.”

    Overseas property and finance expert Simon Conn tells OPP Connect, “I do not think in the long term its introduction is going to greatly affect the UK property market too much, especially as prices are currently increasingly quite dramatically. “CGT is a tax normally due only on the sale of an asset and therefore, the percentage increase (or possible decrease) for this between purchase and sale, could affect any future impact to the owner of the UK property.” Liam Bailey, global head of residential research at Knight Frank, says the decision will have only have a marginal effect on demand and values.

    “Tax is not the primary driver for the majority of international buyers of residential property in London. We anticipate that the removal of the CGT exemption for non-resident purchasers will have only a marginal impact on demand and pricing.” Jennet Siebrits, Head of Residential Research at CBRE UK, agrees. She says although it may initially send the wrong signals to overseas investors and may reduce speculative deals, it is unlikely to cause major long-term problems. “Clearly, Capital Gains Tax will factor into purchasing decisions and there will be some people who will inevitably look elsewhere. It is most likely to reduce the number of investors speculating on price growth and flipping residential property.

    “However, for those making a long term investment, the tax take will be eroded. For those making an investment over a 10 year period, the impact of 28% tax over a decade remains low, annualised at under 3% per annum. “The overall tax treatment in the UK remains generally positive, moreover, the majority of those international purchasers do not simply buy for preferential tax treatment, but for a much wider range of factors which may include a stable political climate or favourable currency exchange rates.” James Wyatt, from the Barton Wyatt agency tells OPP Connect the change has been promoted by politics, but it could lead to some foreign owners selling next year before the tax is introduced.

    “The introduction of CGT on foreign owner selling property in the UK is a political move by the Conservatives to pacify the LibDem’s over their desperation to see the “Mansion Tax” bought in. “As such, it sounds quite bold and there’s lots of talk about “fairness” – but this new tax will only raise £100million, which is one nice house in Kensington Palace Gardens! “The tax will be introduced in 2015, so expect to see some foreigners selling later on next year, but it won’t make much difference to the market in general.” Ed Tryon, of independent North London-based agent Lichfields, says imposing Capital Gains Tax on foreign owners is the least contentious of the options that have been talked about, but he hopes there will be no further tax on overseas property buyers. “Britain’s current taxes on foreign property ownership are considered pretty generous by international standards and the rebalancing of this point seems the most practical.

    “Balancing the country’s books should remain a priority, but additional taxation stifles growth. The world is a complex, multi-national market place and the international dollars, rubbles and remnimbi could just as readily flow elsewhere if London loses its competitive advantage.” But Nick Leeming, Chairman of prime property agent Jackson-Stops & Staff, which has more than 40 offices across the UK, says the move could impact the domestic market, particularly on properties priced under £1.5million level, which draws in a significant number of overseas investors. “CGT on foreign owned properties in the UK will also hit British expats who are keen to keep a home here. CGT would probably raise less than £100 million for the Treasury. It will also send out a negative message to international investors.

    “London is a global city and a safe haven. We need to encourage foreign investment and expenditure in all areas. The recovery in the housing market across the UK is still fragile in many areas and it is essential that the government continues to encourage it.” However, he still believes that international demand will still drive prime property purchases in central London. People who own properties in the UK and are deemed non-residents are currently exempt from CGT. The latest figures from the Office of National Statistics show that Foreign Direct Investment into the UK hit a record high of nearly £1trillion in 2012.

    According to property website Rightmove, the average asking price for homes increased by 2.8% to £252,418 in October, returning to a growth trend that started in January 2013. Many agents have predicted that as the UK economy takes off, house prices could rise by 20% of more over the next five years – although in 2015, when the next general election is forecast – values in central London could stall.

    The decision announced today that foreign owners of property in the UK that is not their main residence will pay capital gains tax is unlikely to have much impact on overseas buyers, according to property experts. The announcement by Chancellor George Osborne means that the current exemption from CGT for non-UK resident owners of residential properties will be removed from April 2015 on future gains.

    The change brings the UK in line with other major property markets including New York and Paris where equivalent taxes can reach up to 50%, depending on the owner’s residency status. * The Federation of Master Builders says that the Chancellor has missed a golden opportunity to reverse decades of underinvestment in Britain’s ageing housing infrastructure by not implementing a reduced rate of VAT on domestic renovation and repair Brian Berry, Chief Executive of the FMB, says, “In his Autumn Statement George Osborne says he is backing British business and British families, and correctly named housing as the general public’s top infrastructure priority. However, the Government continues to focus on big-ticket projects such as road and rail, which will be years in the planning and are unlikely even to begin within the term of this Parliament.

    “The Chancellor has missed an opportunity to reduce VAT on housing renovation and repair. This would deliver an instant economic fillip to millions of households that are struggling with the ever-increasing cost of living and give Britain’s builders the boost they need to capitalise on the recovery.”

    Date: 05/12/2013  |  Source: OPP Connect

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