Liam Bailey, Head of Knight Frank Global Research, comments:
"Tax is not the primary driver for the majority of international buyers of residential property in London. We anticipate that the removal of the CGT exemption for non-resident purchasers will have only a marginal impact on demand and pricing.
It is important to note that the change to CGT rules brings the UK in line with other key investor markets, such as New York and Paris where equivalent taxes can approach 35% - 50% depending on the owner’s residency status.
As we noted in our recent report on International Buyers in London, while non-resident purchasers account for 28% of central London property purchases, their share of the wider Greater London market is far smaller at around 12% of all new-build property purchases in Greater London at the current time."
Kevin Hollinrake, managing director of Hunters Property Group said:
“The Chancellor must be aware that by introducing Capital Gains Tax on foreign-owned properties in the UK, it may risk deterring important foreign investment into the London and the UK housing markets.
The Chancellor also needs to be careful and make sure that expats are not caught up in this move.”
Ed Tryon, Lichfields, comments:
“Foreign investment in prime residential property is a hot political topic, and harmonising the Capital Gains Tax charges seems, on the face of it, the least contentious of the options open to the Treasury. Britain’s current taxes on foreign property ownership are considered pretty generous by international standards and the rebalancing of this point seems the most practical.
Few other asset sectors have performed as well as the prime central London residential market since the economic downturn. Revenue from SDLT and other property taxes have risen significantly, investment and development is apparent on just about every street in the capital; creating significant additional revenue for the construction industry, retail, hospitality, finance and not to mention the 100,000 people who rely directly on this market for their livelihood, accordingly a word of caution to Mr Osborne not to kill the golden goose.
Balancing the countries books should remain a priority but additional taxation stifles growth. The world is a complex multi-national market place and the international dollars, rubbles and remnimbi could just as readily flow elsewhere if London loses its competitive advantage.
The market has absorbed significant SDLT rises from just 1% in 1997 to 7% in 2013 (for £2m+ purchases), changes to ownership structures, the financial crisis and a lending drought in recent times, its resilience is a testament to London’s attractiveness but there is a balance, tip it too far and the consequences for the whole economy could be catastrophic.”
Nick Leeming, chairman of Jackson-Stops & Staff said:
“Two distinct markets have emerged from the downturn – London and the rest of the country. While prices have been spiralling upwards in the centre of the capital, elsewhere the market has been much slower, with the market warming up rather than overheating. However, the ripples from London are beginning to be felt again, with families selling up in the £1m plus bracket and moving out of the capital. The Chancellor must be aware that introducing CGT on properties below the £1m/£1.5m level, where there is a significant number of overseas investors, could have a much greater impact on the domestic market and the spread of housing wealth out into the country. CGT on foreign-owned properties in the UK will also hit British expats who are keen to keep a home here. CGT would probably raise less than £100 million for the Treasury.
It will also send out a negative message to international investors. London is a global city and a safe haven. We need to encourage foreign investment and expenditure in all areas. The recovery in the housing market across the UK is still fragile in many areas and it is essential that the Government continues to encourage it.
International demand will continue to underpin central London at the top of the market and service sector growth will continue to sustain demand in the South-east. Elsewhere, the main drivers will be regional economic growth and the £25 billion investment in infrastructure announced this week should help in the long-term.”
David Adams, managing director, John Taylor London, comments:
“Applying a capital gains tax on international owners of property, in line with that paid by domestic owners, is unlikely to adversely impact the market and seems sensible to bring consistency to UK taxation.
“The main problem for the property industry is a dearth of transactions, with the resulting stock shortage likely to lead to rising prices, as London is already experiencing. Property transaction volumes in the UK fell from a long term average of 1.5 million a year to a range between 850,000 and 950,000 a year following the bust in 2008.
“We’ve seen the first real improvement in property transaction volumes in the U.K this year, with the number rising to just above 1,000,000, which is still short of a normal market, and not too dissimilar to transaction volume levels in the 1992 and 1975 recessions.
“However, according to the CML, the number of loans taken out by people moving home has declined by more than half from 650,000 in 2007 to an expected 325,000 in 2013, and this has still shown no improvement whatsoever since 2009. This is a clear indication that transaction taxation, particularly stamp duty, is now too high, and is seriously impeding the market , which in turn is impeding the recovery. It is a great shame that an opportunity to reform this “vindictive tax” has been missed, probably because of a lack of political understanding as to the taxes contribution in creating the next property price bubble
Peter Mackie, Senior Partner at independent buying agents Property Vision, Said:
“We appear to have had the “phoney war” where political proposals have been aired in public and cries of anguish have been met with the usual decoys to divert attention away from measures that will really hurt. CGT is an easy win but it will be the less obvious that is likely to make the most impact. The one area that cannot be controlled is sentiment and if that changes, all the carefully worked-out tax gains may be for nothing.
“There are still enough other reasons for international investors to buy in London and while CGT is an irritation, it will not necessarily be a deterrent, and after all, tax on a gain is a good problem to have. However this may cause some overseas buyers to consider whether there will be further tax implications applied on them in years to come.
“As international buyers tend to make generational purchases and only a small percentage sell-up in a short time frame, it is likely to lead to even fewer properties becoming available in the coming years.
“The buyers in London reflect the international nature of being a global city. The London residential market is often dictated as much by sentiment as interest rates, so there is no doubt that the presence of international buyers has helped kick start the market post-recession which has filtered through to the domestic market.”
Ed Mead, Director at Douglas & Gordon comments:
“The Government has decided that at least giving the impression of slowing what they fear may be an emerging bubble in the property market in London by driving more of the wealthy foreigners who bring wealth and prestige to the capital by putting CGT on gains they may make. Although for many 72% of a gain is still a good one it’s the sentiment that worries and not scotching rumours of a mansion tax aren’t helping. The real story has already happened insofar as cessation of the mortgage element of the Funding for Lending Scheme perhaps means the end of the artificial low interest rates we’ve seen for so long many think they’re now normal. They’re not and perhaps we’ll now see a start to the painful process of getting the housing market back to normal. Anything the Autumn Statement brings is really tinkering at the margins.”
London central portfolio responded as follows:
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.
Jamie Morrison, private client partner at chartered accountants, HW Fisher & Company, comments:
“It is surprising to hear that this measure is being held back until 2015. It will be interesting to hear the finer details of how this will be implemented.
That said, this will eventually bring the overseas investors broadly in line with the UK’s landlords and will help raise welcome money for the Treasury while throwing a little cold water over London’s overheated property market.”
