LCP Response to CGT on Non-Resident Property Owners…
The implementation of CGT on foreign investors has been an elephant in the room for quite a while. It represents an easy hit and will have popular appeal amongst the electorate who seem to have been revved up by our politicians to be both anti-wealth and anti-foreigner.
The exemption of CGT for foreign owners has unarguably represented an inequality with domestic buyers. The flip side of this exemption, however, is that it is a tax incentive, which attracts foreign investors into the UK and represents a competitive edge over other global capitals.
It appears the Government cannot agree on the value which they set on foreign investment. On the one hand they push to make London the international capital of the world, but on the other they consider strategies which will turn foreign investors away and make it a less attractive place to do business in.
CGT, which is a tax on profit, is unlikely to be a deterrent to investment on its own. However, the cumulative effect of successive taxes introduced in 2011, 2012 and 2013, with regular increases in Stamp Duty and an annual tax on corporate owners, could start to dampen international interest.
The announcement that CGT will not be implemented until April 2015 means the Government have given themselves breathing space. However, the lack of clarify on how values will be rebased will likely cause uncertainty in the market.
If the Government intend to rebase property values from 2015, then LCP predict that CGT will have no dramatic effect on the property market. However, should values not be rebased, this may orchestrate a flood of non-resident owned properties to come to market, as they take their profit before being taxed on it.
There is a positive flip-side, however. For London especially, where around 70% of properties are foreign owned, this could represent a buying opportunity not witnessed since the house price crash of the credit crunch. As property sales flood the market, prices will undoubtedly fall slightly due to increased stock. Once this tax is psychologically absorbed, these buyers will benefit from the price cuts and future price appreciation as patterns return to normal.
Finally, there is one further point which needs clarity from the Government. It was stated by Osborne that the tax will be brought in on non-residents, but not non-residents and non-domiciles. This indicates the tax is aimed at British Expatriates. No other British citizens pay CGT on their main residence, as it is only applicable to second homes, this heavily questions the fairness of the tax.
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