UK to impose capital gains tax on foreigners
New rule includes all who sell non-primary residence but impact is expected to be limited
Hong Kong property analysts are awaiting further details of a proposed capital gains tax on foreign investors in Britain but believe the impact is likely to be limited given the existing property taxes at home and abroad.
Britain will impose capital gains tax on foreign investors selling homes that are not their primary residence from 2015, Finance Minister George Osborne said yesterday as the government moved to curb soaring house prices in London.
"It's not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence while those who don't live here do not," Osborne told parliament. "That is unfair.
"From April 2015, we will introduce capital gains tax on future gains made by non-residents who sell residential property in the UK."
Britons pay capital gains tax - typically at 28 per cent - on any profit from selling property that is not considered their primary residence.
Property prices in London have jumped about 10 per cent in the past 12 months and increases in some parts of the capital have been greater, driven by demand from foreign investors hunting for a second home or wanting to tie their cash in the safe haven of London.
About 70 per cent of newly built properties across central London are bought by foreign investors, according to Savills, while 30 per cent of luxury homes worth £1 million (HK$12.6 million) or more were bought by non-residents in the year to June, consultancy Knight Frank said.
Britain has always been the favourite destination of Hong Kong property investors. But increasingly foreign property investors are coming from mainland China.
According to David Hui, a sales director of mainland Chinese and overseas property at agency Centaline, there will be a psychological effect on potential buyers in the short term.
"Many investors are interested in buying property in Britain as the tax system is simple compared with other countries," Hui said. "The actual impact on overseas buying interest would depend on the details of the tax such as the rates and holding period."
British property industry players said the implementation of the tax sent the wrong signals to overseas investors, who they said had helped support the city's rental market.
However, it would only have a marginal impact on demand and pricing as investors also came to London for other reasons such as political stability, they said.
"While it might cause some disruption at the time of implementation, we do not believe this will have a substantial long-term detrimental effect on the wider residential market," said CBRE's head of residential research, Jennet Siebrits.