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. A consultation on how best to introduce this will be published in early 2014.
The change to CGT rules was widely expected and brings the UK in line with other key property investor markets such as New York and Paris where equivalent taxes can approach 35% to 50% depending on the owner’s residency status.
According to Liam Bailey, global head of residential research at Knight Frank the decision will not have much of an effect on demand and prices. Currently foreign buyers are credited with pushing prices in London, especially in the prime property sector, higher than in other parts of the country.
‘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,’ said Bailey.
The firm’s recent report on International Buyers in London showed that while non-resident purchasers account for 28% of central London property purchases, their share of the wider Greater London market is far smaller at around 12% of all new build property purchases in Greater London at the current time.
Jennet Siebrits, head of residential research at CBRE UK, said that while initially the introduction of the tax may provide the wrong signals to overseas investors and could be seen to discourage their investment into UK property, it is unlikely to have a substantial long term detrimental effect on the wider residential market.
‘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,’ she explained.
‘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,’ she pointed out.
‘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,’ she added.
Edo Mapelli Mozzi, managing director of Banda Property, also thinks the impact on the property market will be limited. ‘While this may have a positive impact on the government’s coffers, it is unlikely to have a negative effect on international property investment in areas such as prime central London, where buyers are confident that they will enjoy a positive return,’;...