UK To Impose New Tax On Non-resident Property Owners

Chancellor George Osborne is set to impose Capital Gains Tax on foreign owners of property in the UK. Those who will be taxed will not be residents of the UK but will buy and sell property within the country. Currently, non-residents do not pay Capital Gains tax but those who do live within the country pay 18% when their home is sold and 28% if the property is not classed as their main home. The Chancellor is expected to release a statement regarding the new tax regulations at the beginning of next month.

The recent surge in overseas investors is thought to be responsible for the new tax. As they are currently exempt from Capital Gains Tax, the move looks set to level out the playing field between residential investors and those living overseas. There has been particular interest in the London market from foreign investors which has been largely credited with causing the recent property boom in the area. However, it is unclear if imposing CGT on non-residents will deter buyers from investing in new London properties. London has been shown to be good value in terms of property for overseas investors and financial experts state that the new tax rules should not have any long term effect on this. This means foreign property oweners will not seek to sell their homes fast.

Currently, buying, selling and ownership costs have amounted to 8.5% of the selling prove of a typical property in London. After the Capital Gains Tax, this would amount to just under 12% according to Yolande Barnes, director of residential research at Savills. This figure is still significantly lower than the figure for property in one of the other three major world cities: New York, Hong Kong and Singapore. Barnes also states that the changes are unlikely to have a major impact on the number of overseas investors in London property.

On the other hand, head of residential research at Knight Frank Grianne Gilmore states that it is still unclear how the demand for London property will be affected by the CGT. Although the tax breaks are not the primary reason why foreign investors are attracted to the London market, it is thought that the tax may be the UK government’s way of addressing the supposed ‘housing bubble’ in London. However, it may have the opposite effect in the time leading up to its imposition. Capital Gains Tax was raised in New York from 15% to 23.8% which caused a surge in sales during 2012 before it was fully implemented. The sales then declined.

Concerns have been raised regarding the knock on effect the changes to CGT could have. The interest from overseas markets has created additional revenue for the retail industry, the construction industry and the hospitality industry therefore changes to the property tax could have an adverse effect on these sectors. The tax could also affect other regions and interest from overseas investors could switch to other prime property areas of the UK. As the details of the CGT changes are still unclear, financial experts are still unable to predict exactly what the effects on house prices may be or whether interest from overseas buyers will be deterred.

Image License: All rights reserved by Agorfa DM

Share this post:

Related Posts

Leave a Comment

css.php