Overseas investors will face capital gains tax

icebergRecent years have seen the UK property market become particularly appealing to overseas investors seeing a safe haven for their cash, and around half of new developments in central London’s most upmarket boroughs are being sold to foreign buyers, some of whom leave them empty for much of the year.

The UK’s property taxation system has been cited as a reason for its appeal, and there have been calls for the government to apply more taxes.

Currently, only UK citizens and residents pay capital gains tax (CGT), which is charged on profits made from the sale of any property that is not the owner’s main home. Basic rate taxpayers pay 18% of the profits, while higher rate payers hand over 28%. A foreign buyer who bought a property for £1m and later sold it for £3m could pocket the proceeds tax-free, while someone based in the UK would face a bill of up to £560,000.

The rule change, which comes into effect in April 2015, will apply to future increases in value, not any previous growth. As well as foreign investors it will also hit UK expats selling properties while based overseas, and is expected to earn the government £125m by 2018/19.

An influx of overseas buyers has been blamed for helping to push house prices out of the reach in London.

Changes to private residence relief which will come into effect in April 2014 will mean that anyone selling a property they have not lived in for more than 18 months will face a higher tax bill.

Currently, anyone selling a home that has at some point been their main residence gets three years of CGT relief, but that period is to be halved. The Treasury said it expected to make £360m out of the change by the 2018/19 tax year.

Weather the above changes will make any impact on overseas investors appetite to invest in the UK remains to be seen.

If you want a better understanding of how these changes may affect you, please contact us an initial discussion on 020 7060 6142