Tax wise, currently non UK residences do not pay capital gains tax as an overseas landlord although investors are becoming increasingly concerned this is set to change.
The general consensus though is any tax increases will be London focused as the UK government try to cool the central London market but do not want to hinder overseas investment in UK market as a whole.The UK media reported this week that house prices had risen at the fastest pace in over three years, showed house prices across the country rising at an annual rate of almost 6 percent - eight times faster than average incomes.
Fears are of a housing bubble, particularly in London, where demand from cash-rich Russian oligarchs and Middle East investors among others has helped lift prices more than 10 percent in a year. Overseas investors have been big buyers of London property over the past few years, lured by Britain's safe-haven status and the prospect of capital appreciation and attractive rental yields. Estate agents Knight Frank calculate that foreign buyers account for 70 percent of all new-build property sales in prime central London.
Britons have to pay capital gains tax - typically at 28 percent - if they make a profit when reselling any property that is not considered their primary residence. But foreign property investors have hitherto been exempt, unlike in many other European countries.
"Charging non-resident property owners capital gains tax on sales of second homes in the UK would bring the UK into line with what happens on most of mainland Europe," said Ronnie Ludwig, partner at accountants Saffery Champness. "This could adversely affect the market for foreign second home owners in the UK, particularly in the traditionally up-market areas."
According to accountancy group PricewaterhouseCoopers (PwC) the prospect of a tax on the profits made by overseas home owners could deter inward investment into the central London housing market and the wider UK economy.
Ros Rowe, real estate tax partner at PwC, said: “A typical response from my [overseas] clients is that they feel labelled as 'tax avoiders’. These people are proud to have built up capital to pass on to their children and see investment in London as wealth preservation.” Such investors, typically from the Middle East and Russia, hold property in Mayfair, Belgravia, Chelsea and Kensington, having been attracted by their opportunities to shop or do business.
The plight of first-time homebuyers is moving up the political agenda ahead of an election due in 2015. The government has introduced measures to help less-well off homebuyers get mortgages but has had to fend off criticism that, by pushing up prices, its "Help to Buy" scheme simply makes matters worse.Property consultant Savills calculates the value of London property has risen by 140 billion pounds over the last five years to stand 14.2 percent above its 2007 peak.
Continue to encourage investment in UK property whilst cooling down the central London market will be definitely a balancing act. With arguments either way, let’s see….
Joe Billingham for Prosperity 5.12.2013
