Foreign buyers of residential property in the UK are gradually realising that their houses are going to cost them more than they first thought. A change in the tax laws which slipped in under the radar in August this year means that anyone registered as living abroad but owning residential property in the UK (so-called “non-doms”) must now pay tax of up to 45% if they use overseas assets as collateral to finance purchases in Britain.
It used to be the case that foreign assets such as stocks, shares or property could be used as security against borrowings in Britain with no tax charge as they were not considered to be transfers of wealth into the UK. But now foreign assets are taxed as remittances from abroad, meaning that they are liable for either capital gains tax or income tax, depending on the precise nature of the assets.
In a typical case, this means that a non-dom purchasing an expensive property in the UK and funding the transaction from abroad will have to re-calculate the cost as it will rise dramatically from the basic sale price.
And it’s not just those buying property since August who are having to look into the cost of their property. The measure has been back-dated, meaning that those who bought property in the past and financed it with money from abroad must check out the current situation. If they are liable to be taxed, they have until March 2016 to refinance or sell their properties; after that point, they will be charged tax on the purchase.
The move can be seen as one of a series which reflects confidence on the part of the UK government in the country’s economy. In 2012, the Chancellor, George Osborne, announced plans to impose capital gains tax on expensive properties owned through companies. And the government has also imposed an annual tax on homes held in companies. The tax authority, HMRC, revealed recently that this has raised £198m in ten months.
Whilst generally not welcoming the change, specialists in the property field are divided over the extent to which this latest move will have an impact on the housing market, especially for luxury homes. Some analysts maintain that there is a boom in housing, others that the situation is still depressed.
But most seem to agree that in the most expensive bracket the new legislation is already having an effect. Prices at the top end of the market have come to a near standstill, and some notable deals have already fallen through. Although not related to this latest change, the Financial Times recently revealed that more homes worth over £2m were withdrawn from sale in the first six months of this year than were actually sold.
Those contemplating buying luxury homes may also have one eye on the next General Election in the UK, which is due in May 2015. Were a Labour government to be elected they may well impose a “mansion tax”, increasing the cost of residential property at the top end of the market still further.
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