Treasury considers CGT for foreign property owners

Chancellor George Osborne is considering imposing capital gains tax (CGT) on foreign owners of UK property as one of the measures to be announced in the Autumn Statement on 4 December, reports chartered accountants Harris & Co.

According to reports, the Treasury has already provisionally costed the plans, which are intended to damp down the current housing bubble in prime London areas such as Kensington and Chelsea. Research by estate agency Knight Frank indicates 70% of the capital’s most expensive newly built properties are bought by non-UK citizens, while 65% of those moving from overseas opt to buy rather than rent.

While UK residents have to pay CGT if they make a profit when reselling any property which is not their main home, non-resident property owners are currently exempt for all their properties. Under the proposals, which Osborne is said to be ‘actively investigating’, overseas buyers would become liable for CGT, as they are in many other countries throughout Europe.

While UK residents have to pay CGT if they make a profit when reselling any property which is not their main home, non-resident property owners are currently exempt for all their properties. Under the proposals, which Osborne is said to be ‘actively investigating’, overseas buyers would become liable for CGT, as they are in many other countries throughout Europe.

Neither the Treasury nor HMRC would comment on the reported changes to CGT. The Liberal Democrats have long been calling for a mansion tax on homes valued at over £2m, but critics suggest this would have more of an impact on domestic homeowners who hold properties for many years, rather than overseas buyers who are viewed as making investment purchases in the London and south east property market.

Rosalind Rowe, real estate tax partner at PwC, said:

‘If the government is looking at changes to property tax, the key consideration is the end goal. The big issue in the housing market is lack of supply, but foreign investors tend to be at the top end of the market where supply is less of an issue.’

‘If the government is looking to raise revenue, most foreign investors in UK property are in it for the long term so a tax on sale is unlikely to yield much. Another consideration is how extending CGT fits with the government"s open for business agenda, as it is unlikely to send a welcoming message to foreign investors. A cost benefit assessment would be essential before any decisions are taken.’