New move to tax foreign property owners could backfire, warning

Reported moves by George Osborne to introduce Capital Gains Tax for foreign owners of UK homes have come in for strong criticism.

There are fears it would seriously deter foreign investment in residential property.

One of the strongest attacks has come from property fund London Central Property Portfolio.

LCP, which focuses on two-bedroom investment apartments in prime central London, said: “The potential levy of CGT on foreign investors has been an elephant in the room for quite a while.

“It represents an easy hit which 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.
 
“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.
 
“It is possible that CGT, which is a tax on profit, would not 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. And, of course, Mansion Tax still looms large, the introduction of which could be the straw that breaks the camel’s back.

“The other critical issue is whether the potential suppression of foreign investment will help mitigate the housing crisis in the UK’s domestic market. This is purportedly the aim of the tax, although it is much more likely to be a populist means of raising tax revenue.
 
“Whilst there is no question that the chronic housing shortage must be addressed, the reality is, that by heaping blame on the foreign investor, the Government is not confronting the problem.

“Attacking international buyers, particularly those who purchase in new developments, may be fine words but diverts attention from the real issues.  
 
“The average transaction price of a property in England and Wales is under £250,000 whilst new units in Battersea and Vauxhall are averaging £600,000 and in Canary Wharf around £400,000. If these units are not sold to foreign investors, they may not sell at all.

“Not only are these properties largely unaffordable but most domestic buyers have neither the equity nor the desire to wait three years whilst a new development is constructed.
 
“A practical solution to building large volumes of affordable housing is urgently required.

“However, the Government needs to carefully think about whether a CGT on foreign investors is a vote winner but an economy loser; whether foreign investors should be considered a scapegoat or a valuable financial asset.”

Lucien Cook, director at estate agent Savills, said: “Proposals to tax the capital gains of non-UK resident property investors are a much more targeted and much less controversial solution to the perceived inequalities in the taxation of high-value properties than a blanket mansion tax.

“But this move could make some foreign investors reticent to buy property in London or current owners reluctant to sell.”