Rumour has it that the Chancellor of the Exchequer is considering slapping a Capital Gains tax on wealthy foreigners who are snapping up property for investment in London.
The move comes after the Liberal Democrats and Labour threatened to introduce a Mansion Tax on properties worth over two million. The idea is that the tax would address concerns that the price bubble in the house market in London and the South East has been created by foreign buyers.
Just to be clear: Treasury Officials have not yet confirmed that they’re set to introduce this yet – although they’re understood to have costed the measure for the Chancellor who is set to make a decision in December. We at Robert Holmes happen to think it’s a very bad idea as it could make some foreign investors unwilling to buy property in London or existing owners reluctant to sell. Also, Mr Osborne has already targeted homeowners at the top of the ladder after announcing a seven per cent rate of Stamp Duty for properties costing more than two million and charges for buyers who transfer homes in holding companies. Right now, the property market is buoyant and vital to continual economic growth in London and the South East and if this demand is dampened it could lead to a fall in prices across the board.
The fact that property at the higher end is so enormously taxed seems to have escaped the attention of the Treasury, if the proposals do go ahead. Taxed to the hit, those with multimillion pound properties who often aren’t income rich, are likely to be hit with the Mansion Tax as it is. And the thing is, once a tax is introduced on one sector of society, there’s unfortunately a ‘trickle-down’ effect if you like; with thresholds not moving according to inflation and resulting with everyone being pulled into the tax net. From Stamp Duty (originally a tax on written documents) to Inheritance Tax (originally meant to target wealthy landowners), everyone ends up suffering.
When it comes to this new idea about foreigners and Capital Gains, it may originally seem fair as UK citizens pay this tax too. But one of the reasons London and indeed the rest of the UK have managed to weather the storm better than the rest of Europe is (apart from not being in the euro), that foreigners have seen the UK capital as a safe haven for their money; investing in property and businesses away from the rapacious claws of governments in countries such as Russia and Greece.
Also, it’s key to remember that overseas buyers often are subject to CGT (or a similar tax) in their OWN country – so effectively they could be paying twice (although evidently this doesn’t apply to residents of tax-free countries).
When it comes to property, we say across the board the less tax the better. The fact that the government’s introduced Help-to-Buy recently also shows the lack of planning when it comes to their policy as it is – reports claim the scheme could push the average price of a house in the UK to £300,000 by the end of 2015! It therefore seems strange that they could be now considering something to push down the market in other areas. We shall have to see what happens.