Liquid error: wrong number of arguments (2 for 1) Autumn statement: Overseas investors 'will be unfazed by new CGT tax' | Marsh & Parsons Sales and Lettings Estate Agents London

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Autumn statement: Overseas investors 'will be unfazed by new CGT tax'

Thu 05 Dec 2013

Autumn statement: Overseas investors 'will be unfazed by new CGT tax'

An increase in the tax paid by overseas investors on UK property is unlikely to deter wealthy buyers stalking the

capital's housing market, according to tax experts and estate agents.

The autumn statement closed a loophole which allows property investors outside the UK to make profits on the

sale of homes in this country without facing a capital gains tax (CGT) charge.

The new "oligarch tax" will bring the tax treatment of such investors into line with that of UK residents in an effort

to cool the London housing market, where prices have leapt by almost 10% since last year.

At present, only UK citizens and residents pay CGT, which is levied on profits made from second homes.

Basic-rate taxpayers pay 18% of the profits, while higher rate payers hand over 28%.

Up to now 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.

In recent years the UK property market has grown particularly appealing to overseas investors seeking a safe

haven for their cash. About half of the new developments in central London's most upmarket boroughs are being

sold to foreign buyers.

The UK's property taxation system had been cited as a reason for the appeal, and there were calls for the

government to impose more taxes on the country's richest home buyers.

Addressing parliament, the chancellor, George Osborne, said: "Britain is an open country that welcomes

investment from all over the world, including investment in our residential property. But it's not right that those

who live in this country pay capital gains tax when they sell a home that is not their primary residence, while

those who don't live here do not."

The change is set to come into force in April 2015, and the government anticipates it will bring in 125m in its first

three years. However it seems unlikely the change will dampen investors' enthusiasm and lead to a flurry of "for

sale" signs across Kensington and Chelsea in London.

Peter Rollings, chief executive of the estate agent Marsh & Parsons, said that if the introduction of CGT quelled

calls for a mansion tax it could actually boost the market. "London is still a much more attractive and easier place

to buy property than many other cities around the world, and demand for the best properties will remain fierce."

Tax experts at Pinsent Mason said double-taxation rules meant that in some cases investors would just be

shifting the tax they paid from their resident country to the UK, without having to pay more.

Furthermore, a separate change to the way CGT is charged when a homeowner lets a property that was formally

their main residence is set to net the Treasury more money. It could catch also out accidental landlords and

wealthy homeowners attempting to cash in on rising rents and house prices.

The profits on second homes are subject to CGT, but private residence relief reduces the amount paid if an

investor has previously owned a property as their main home. The reduction is currently applied for the last three

years of ownership, but in a surprise move the chancellor said that period would be halved from April 2014.

The change is designed to stop those with multiple homes cashing in on a relief designed to give homeowners a

grace period if they found themselves forced to move on and unable to sell up, as the rules allow investors to

"flip" their prime residence between properties. It will bring in an estimated 360m by the 2018/19 tax year.

The changes means that someone selling a property that they previously lived in as their principle private

residence and have rented out for the past three years will now face a bill.

On a property bought for 100,000 a decade ago, rented for the last three years and then sold for 180,000, this

could mean a tax bill of 3,360 for a higher-rate taxpayer making the gain after April 2014, against nothing now.

Lucy Brennan, a partner at the accountants Saffery Champness, said the change would come as a shock to

sellers. "For those moving out because of a divorce, this is likely to be a valuable relief, given that the sale of the

home is not necessarily under their control. In times when property prices are predicted to sharply increase,

paying tax on an extra 18 months of gain could be substantial."

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