In December 2013′s Autumn Statement, Chancellor George Osborne announced that the loophole allowing non-residents to avoid paying Capital Gains Tax (CGT) after selling a residential property in London; would be closed: cue predictable hysteria from some industry experts about house prices falling as foreign money would inevitably be pulled out of London.
Lawsons & Daughters, an estate agents in Hammersmith & Fulham mentioned in a recent post that this was a long time coming; and, in many ways, is quite fair as it evens out the playing field between overseas investors and UK-based buyers.
The new CGT rules will affect individuals and private companies based outside the UK that own residential property in the UK and will cover homes that are used by the owners as private residences or that are rented out as investments. Tax rates will roughly mirror those for UK residents, with individuals and trusts taxed at up to 28%, and companies at 20%.
However, while foreign buyers should be aware of the new changes and prepare accordingly, we don’t think that closing this loophole will discourage foreign investment in property in the capital’s housing stock. Despite the fact that there’s been a recent increase in stamp duty and that a mansion tax may be introduced in the UK if the Labour Party form a government in May; the UK remains a good bet.
This is because rising property prices, along with the stable economy and the political and legal systems, make London a great option for investors from all over the world. A London property is a must-have for property developers from areas such as Asia, the Middle East and Russia and due to the problems in the Eurozone, Italians and recently Greeks have been snapping up London property.
Chinese buyers are particularly keen to purchase prime London property, due to the fact that the renminbi is undervalued and there are massive gains to be made. According to government figures, the amount of so-called investor visas given to Chinese nationals mean that at least £1m has been put into the UK property market, which has doubled in the year to the end of September 2014. Chinese nationals accounted for 43% of all investors, which is the highest proportion of any country.
Property in prime London is seriously in demand as there is a desperate shortage, pushing prices up. Last year, just 3,900 homes worth £1m or more were sold in Central London according to official figures and supply could fall further if overseas owners don’t sell their properties. There’s also a lack of quality stock on the market, meaning that high-end luxury apartments are especially sought-after, which is why investors are seeking out riverside property, with Knight Frank reporting that foreign purchasers bought 80% of homes on offer at Thameside housing developments.
25% of the four developments were taken by buyers from the Far East and about 20% from the Middle East, with 40% of all the homes in the scheme sold to investors. These same investors seeking convenient superior transport links and double digit growth potential in the value of their properties are now turning their attention to areas adjacent to the hot spots in prime central London, including Fulham, where prices increased by 16.4% last year. The abundance of parks, open spaces, great schools and ‘village atmosphere’ makes the borough perfect for those looking to experience the best of London. The area’s seen an increase of affluent professionals in the banking and hedge fund industries move for this reason, as well as those looking for bigger properties in order to start families.