Is April 2015 D-Day for London property investment capital gains tax reform? What will the new rules mean for international and expat investors, and London property values? What are top property investment company analysts saying about the change?
The Big New Tax on London Property Investors
Chancellor of the Exchequer, George Osborne announced that the UK will level the playing field for domestic and foreign investors by closing a tax law loophole, and effectively instituting a new tax for those selling London property.
This may be welcome news for British homeowners and domestic investors, especially with new projects pushing the $10,000 USD per square foot mark, and could provide additional revenues for supporting other important services which will keep the UK competitive. However, some property investment company heads and media commentators have floated negative opinions, and fears that the new 28% tax rate on selling London property could deflate home prices.
The new tax rate goes into effect in 2015.
What Every Investor and Property Investment Company Needs to Know about CGT
- Investors that have lived in their units can discount the last 18 months of gains
- The new tax goes into effect on April 6th, 2015
- Capital gains for expat and foreign investors will be taxed at 28%
- Gains and tax liability will be calculated from April 2015 forward
The Immediate Impact of New London CGT Rules
Property investment company spokespeople, and leading estate agents have predicted that the top 10% of London’s prime, central market could feel the pinch in reduced prices. This may have already been witnessed in some ultra-prime markets, but is considered ‘pricing in’ new taxes, rather than weakening of demand or appeal.
With taxes only applicable to gains after April 2015, many international investors, and expats are no doubt already seeking out new acquisitions to lock in prior to the deadline. Property investment companies and those with larger portfolios are also likely to fuel the market with increased activity during the second half of 2014.
While no one may like the idea of paying taxes, property investment company advisors, and banking firms like Barclays have also been quick to remind the world that London CGT is actually still lower than in many other destinations. Overall London still stands out as a superior investment and once individuals do their own math on the alternative are unlikely to switch their investment strategies based upon London CGT alone.
Could CGT Increase London Investment Property Performance Post-2015?
It is only expected that industry professionals would push back against any moves like this which they might fear could impact their incomes. However, there are several more reasons why the new tax may not only just fail to negatively impact the market, but could actually boost the London property market from 2015 forward.
This includes the fact that most property investment companies and individual investors interested in London are most interested in long term hold, and yield, not buying and selling quickly. There are also other ways to invest in London property such as through shares of a third party property investment company.
If anything, more existing expat and central London investors may delay selling, which will reduce inventory, increase competition, and push up property prices and values.
What is important is that London real estate investors obtain valuations around April 6th, 2015 in order to prove values when it comes time to sell.