Foreign Investors to be Hit by Change to Capital Gains Tax on UK Properties

The UK property market has had a bumpy ride over the past few years. London recovered earlier than most, but many other regions look like they have turned a corner.

By Alan Lester, HW Fisher & Company

 

The capital’s property market, particularly prime residential, remains attractive to overseas investors. Areas such as Kensington and Chelsea remain hugely popular with foreign investors, while new developments in the more upmarket areas of the capital are being snapped up by overseas buyers.
 
 

Tax advantage closed

 
In the last Autumn Statement, the Chancellor announced a change to capital gains tax (CGT) rules for overseas investors buying UK residential property, designed to close a tax advantage where such overseas investors are treated more favourably from a tax perspective than British based landlords.
 
From Apr 2015, foreign investors will also pay tax on gains in value on UK residential properties they own. They don’t currently.
 
This move will bring those overseas investors broadly in line with similar UK landlords, help raise money for the Treasury, and maybe splash a little cold water on London’s constantly rising property market.
 
Currently, UK citizens and residents pay CGT on the profits of the sale of a property that is not their main home. Basic-rate taxpayers pay 18% of the profits while high-rate taxpayers have to stump up 28%.
 
The rule change may only apply to future increases in value and not previous growth. A consultative document was recently released and the exact details will be known later in the year. The change will also apply to UK expats selling properties while based overseas.
 
To the extent there is exposure for non-UK resident taxpayers in respect of these investment gains, they can usually offset the UK tax they have to pay against any additional domestic liability.
 
The Budget also announced changes to the Annual Tax on Enveloped Dwellings (ATED) charge paid by overseas businesses on residential properties held for non-commercial purposes.
 
The threshold has been lowered from £2m to £500,000, so ATED charges (and the associated CGT) will become payable on more properties. These extra ATED annual charges on the lower property levels are being phased in from either Apr 2015 or Apr 2016.
 
 

UK landlords

 
Mr Osborne announced he is cutting the capital gains tax break on former homes that have been rented out or kept as second homes.
 
From Apr 2014, the tax-free period enjoyed by anyone who turns their former home into an investment property will be halved from the final three years of ownership to just the last 18 months.
 
For tax purposes, any gain made on these properties will be divided equally among the years of ownership. Estimates are that this tax rule change might bring in more than £350m in extra tax revenue for the government between 2015 and 2019.
 
-END-
COMMENT
VIEW COMMENT
 
BACK TO TOP