Property owners from outside the UK will be made to pay capital gains tax when they sell homes in Britain, chancellor George Osborne announced yesterday.
The move is intended to raise £70 million (€83 million) a year by 2018-19, mainly from wealthy overseas investors.
The decision, outlined in the chancellor’s pre-budget autumn statement, goes some way towards bringing London into line with other global property investment locations – such as New York, Paris and Hong Kong – where foreign buyers face much stricter tax rules to shield local home-buyers from the inflationary effects of international demand.
From April 2015, homeowners who are non-resident in the UK for tax purposes will become liable for capital gains tax on any increase in property values after that date.
Booming market
However, the measure is unlikely to have any impact on Britain's booming housing market before then, experts claimed.
Lucian Cook, head of UK residential research at estate agent Savills, said: “This is the ‘least-worst’ outcome for prime London and means that there will be no mass sell-off as foreigners crystallise past gains, and little incentive to exit or not buy into the London market going forward.”
Non-resident buyers account for more than a quarter of central London property purchases and about 12 per cent of all new-build property purchases in Greater London, figures from Knight Frank show.
Liam Bailey, head of global research at estate agent Knight Frank, said the tax change would have “only a marginal impact” on foreign investors’ demand for UK housing. “Tax is not the primary driver for the majority of international buyers of residential property in London,” he said.
But the capital gains tax change will also hit British people who live abroad and retain a property in the UK.
Expatriates
Charles Beer, managing director at independent tax adviser Alvarez & Marsal, said: "Despite being designed to cool an overheated central London market, it will affect just as many people in other areas – notably expatriates who have kept property in the UK, either for letting or for their own use."
In addition, Mr Osborne announced a change to raise more tax from buy-to-let landlords who rent out a property they had previously lived in.
Owner-occupiers who become landlords can claim private residence relief from capital gains tax if they sell the property within 36 months.
From April 2014, this exempt period will be halved to 18 months "to reduce the incentive for those with multiple homes to exploit the rules".
– Copyright The Financial Times Limited 2013
