Under new rules Britons abroad will be subject to a standard 18pc capital gains tax
Recent tax changes in Britain may bring smiles to the faces of British expatriates in Hong Kong with homes in their mother country. But Hong Kong residents living or working in Britain may be less pleased.
The Chancellor of the Exchequer, Alistair Darling, announced in his pre-budget report on October 9 that capital gains tax (CGT) would be charged at a standard rate of 18 per cent from April next year, with the upper and lower rates abolished.
British expatriates living and working abroad are charged capital gains tax on the growth in value of their British home while they are overseas.
Under the old system, they might have paid as much as 40 per cent tax on the rise in value if they were overseas for a short time, say one year while those who lived abroad for 10 years or more would have paid at least 24 per cent.
'For returning expats who own UK property and have been away for a prolonged period, the CGT changes will be beneficial,' said Lucian Cook, director of research at estate agents Savills.
However, expatriates who run their British property as a business by letting it out as a holiday home would be worse off, because they would no longer pay capital gains tax at the lower rate of 10 per cent, said Robert Bartlett, chief executive of estate agency Chesterton Global.
Hong Kong investors who own British property are not liable to capital gains tax, so Mr Darling's reform does not affect them. However, Hong Kong and other overseas non-domicile residents living in Britain must pay a new levy from April next year - a flat rate charge of #30,000 (HK$475,000) per year if they live there for seven years.
Political pressure has grown for such 'non-doms' to be taxed more heavily. Until now, they have paid tax only on income brought into Britain.
Britain's estimated 100,000 non-doms have had a huge impact on the luxury property market. Half of London's multimillion-pound abodes were bought by overseas buyers in the past 12 months, Savills reports.
'For a lot of non-doms that (levy) is going to be fairly inconsequential, especially because they are wealthy people,' Mr Bartlett said. 'This should not be any great deterrent to a Hong Kong or Asian buyer. They would not have to pay it anyhow for another seven years if they arrived now.'
Mr Cook considered the chancellor's move beneficial for the market.
'It might support the prime central London market, because it removes the uncertainty that non-doms might be hit hard,' he said. 'The new charge may still be an annoyance, but it is not too hard. It is the lesser of two evils.'
Mr Darling had doubled the threshold at which inheritance tax was paid from #300,000 to #600,000, rising to #700,000, in 2010, which would please returning expatriates, Mr Cook said.
The chancellor announced future threshold rises would be set according to house price growth and not just inflation as had been the case.
The middle classes had demanded inheritance tax reform, because property had risen in value much faster than thresholds over the past 10 years, leading some parents to sell homes, so their children would not face big inheritance bills.
Mr Cook said the inheritance tax change would have a marginal impact on the property market, because it only affected a small number of properties.