Will CGT on foreign owned property cause flood of prime London homes? That depends on how the tax is calculated say experts

5th December 2013

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Government plans to levy Capital Gains Tax on sales of homes by foreign sellers could cause a flood of prime property to come on to the market in 2015 but that partly depends on the tax is calculated say experts.

The London Central Portfolio says that if the Government rebases property values from 2015, it should have a limited impact on the market. However if values are not rebased it could lead to a “a flood of non-resident owned properties to come to market, as they take their profit before being taxed on it”.

The firm, which advises on central London property, says there is a positive. “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”.

The firm has also says another points needs clarification and adds: “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”.

“Other experts believe the impact may be more limited. Karelia Scott-Daniels, managing director of buying agents, Manse & Garret Property Search,says: “In an easy political points win, and one that will be welcomed by almost everyone, the Chancellor has turned the screw once again on foreign property investors, making them pay capital gains tax on the sale of a second property like UK taxpayers.  Will this have an effect on prime areas of the London and broader UK market? Not at all. Some short-term investors may sell up ahead of the 2015 deadline but this will not cause a run on the property market in prime areas. Given continued volatility globally, London is simply too stable an investment for internationally mobile individuals. I also think that, as the UK seeks further assistance from China and others to help finance major infrastructure, it is likely that capital gains could be capped or reduced as a sweetener for major investment in deprived areas of the country.”

 

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