Speculation
is increasing that UK Chancellor George Osborne is set to impose
Capital Gains Tax on people who are non resident but sell property they
own in the country.It is expected that he will make the announcement as part of his Autumn Statement due at the beginning of next month.
Currently home owners living in the UK pay 18% CGT when they sell their home and 28% if it not classified as their main home. People who own properties in the UK but are not residents are currently exempt from CGT.
The idea to start charging CGT to foreign owners is due to a surge in the number buying homes in London which has become a favourite safe haven for overseas property investors.
According to many real estate analysts the move should be welcomed as it deals with an anomaly between the tax treatment of domestic and overseas buyers and levels the playing field between local and overseas investors.
But the big question is whether it will deter overseas buyers of new properties in London and affect the current boom in the market place which is largely credited to demand from overseas buyers.
According to Yolande Barnes, director of residential research at Savills, the plan will not make London look expensive on the international stage. ‘Our analysis of four major world cities: London, New York, Hong Kong and Singapore has shown London to be particularly good value for overseas purchasers in the past,’ she said.
‘For those holding a residence for five years, total buying, selling and occupation/ownership costs have amounted to 8.5% of selling price in London. Under the proposed new CGT regime, this will increase to just under 12%,’ she explained.
‘This is still substantially less than it would be for the same value property in any of the other cities, except in cases where property is held in a special purpose vehicle or company in which case the new SDLT regime makes it more comparable,’ she added.
She does not believe that a new CGT would deter overseas investors, but pointed out that it will increase the tax take from London properties for the exchequer and the proposed measure puts London more in line with other world cities and addresses an inequity in the tax system.
‘Most importantly, it is unlikely to deter overseas inward investors who are attracted to the capital as a place in which to live and invest. London is a cosmopolitan city which stands out on the world stage as being particularly welcoming to foreigners. Most overseas home buyers are an important part of the London economy and are not depriving Londoners of homes, they are Londoners themselves,’ she said.
Grainne Gilmore, Knight Frank's head of UK residential research, said it was hard to gauge how demand would be affected without knowing the details of what is planned but she pointed out that tax is not the primary reason why global property investors come to London, but a change would have an impact.
Stephanie McMahon, head of research for Strutt & Parker, said that if the thinking behind the move is to cool the prime property market in London then imposing CGT on foreign owners across the board might not be the best move.
‘There is no doubt that London has seen huge price growth. However, it has to be acknowledged that this has been curbed by other government interventions through various tax measures including Stamp Duty Land Tax. Whilst it is clear that the government are proposing this new measure to take the heat out of London one must ask whether the idea of the ‘bubble’ has been sensationalised. London, Greater London and the country as a whole have very specific dynamics and markets and one cannot talk so generally,’ she explained.
‘There can be no doubt that further taxing will have an impact on transaction levels in the prime area where between 50 to 70% of buyers are foreign. The initial response might be almost opposite to the intention, however, as talk around the issue could cause a flurry of activity but it is likely that it will then slow the transaction levels down dramatically as it did following previous interventions,’ she added.
She gave as an example the situation in New York where the CGT tax has increased from 15% to 23.8% and causes a huge rush in sales during 2012 adding further heat before sales then dropped off this year. Singapore has an additional overseas stamp duty of 15% to cool their market too.
‘Without knowing the full details of how this tax will be enacted and the figures involved it is hard to predict the full repercussions. One thing that is very clear is that governments around the world are looking very seriously at how they can raise revenue and control their markets. I cannot see these conversations going away, and as each government does this, the money moves to the next prime city further increasing the heat,’ she explained.
According to Ed Tryon, director at Lichfields buying agency, Britain’s current taxes on foreign property ownership are considered pretty generous by international standards. ‘Few other asset sectors have performed as well as the prime central London residential market since the economic downturn. Revenue from SDLT and other property taxes have risen significantly, investment and development is apparent on just about every street in the capital,’ he said.
He added that this has created significant additional revenue for the construction industry, retail, hospitality, finance and those who rely directly on this market for their livelihood, so a change could have affects beyond buying and selling.
‘Balancing the countries 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,’ he explained.
‘The market has absorbed significant SDLT rises from just 1% in 1997 to 7% in 2013, for £2 million plus purchases, changes to ownership structures, the financial crisis and a lending drought in recent times, its resilience is a testament to London’s attractiveness but there is a balance, tip it too far and the consequences for the whole economy could be catastrophic,’ he warned.
He also believes there are other revenue raising options such as a further increase to the SDLT bands or an additional band in excess of the one at £2 million, the much talked about Mansion Tax for all properties with a value over a certain level and an overhaul of the rather outdated Council Tax bands, although this is unlikely to be popular.
Article Source: http://www.propertywire.com/news/europe/uk-property-tax-sellers-201311048421.html
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