George Osborne has confirmed that Capital Gains Tax will be payable in future by foreign property owners, providing them with a 15-month window to sell up to avoid the tax. A shorter five-month window has been opened up for UK home owners, including accidental landlords, who rent out what was their main home as from then on they will become liable for Capital Gains Tax within 18 months, and no longer three years.
In his Autumn Statement yesterday, the Chancellor said foreign property owners who do not live in the UK will have to pay CGT from April 2015. CGT is currently payable at 18% or 28%, depending on the means of the individual.
Osborne said: “Britain is an open country that welcomes investment from all over the world, including investment in residential property. But it is not right that those who live in this country pay Capital Gains Tax when they sell a home that is not their main residence, but those who don’t live here do not.
“That is unfair, so from April 2015 we will introduce Capital Gains Tax on future gains made by non-residents who sell residential property here in the UK.”
Nilesh Shah, senior tax partner at London Chartered Accountants Blick Rothenberg LLP, said: “London property prices may fall if non-UK residents take advantage of their 15-month window to sell their UK property before having to pay Capital Gains Tax.”
Osborne also announced cutting back by half, from three years to 18 months, the Capital Gains Tax exemption period for those who have lived in a property they now either let, use as a second home or no longer live in.
This is due to be implemented next April 4 – a year earlier than the introduction of CGT for foreign owners.
KPGM partner Daniel Crowther said: “Essentially, this reduces the incentive to flip a house – that is, to buy a property, use it as a principal private residence, and continue to benefit from the CGT exemption for the next three years.”
He said: “Affected owners may well be tempted to try to sell up before this measure bits so we could see a rush of properties coming to the market in the next four months.”
In other announcements, Osborne said that home owners objecting to new developments next to them could receive payments – something which the British Property Federation interpreted as a bribe and demanded to see the detail. There is also to be a consultation on allowing developers of small schemes, up to ten new homes, to be let off Section 106 agreements. Local councils could also stand to lose New Homes Bonus money if they first refuse planning permission for the scheme and then lose on appeal.
Elsewhere in the Autumn Budget – which ignored calls for Stamp Duty to be reformed – Osborne announced a £1bn loans fund to unlock development sites focused on the north, pledged to expand right-to-buy, and increased the amount which councils can borrow to build homes by a total of £300m.
However, many in the property industry thought Osborne failed to deliver for housing.
Grenville Turner, CEO of Countrywide, said: “The Chancellor announced that Britain is moving and finished his Autumn Statement with the positive note ‘let’s keep moving’. Unfortunately, this positivity did not extend to helping people move house.
“We believe the Autumn Statement was a missed opportunity.
“We handle more housing transactions than anyone else in the UK, and as a result we see first-hand the issues facing property buyers and home movers, and one key issue is the Stamp Duty Land Tax system, which we believe in its current format is outdated and prohibitive to promoting growth in the housing market.
“It would have been good to see the Government scrap Stamp Duty for all properties worth £250,000 and under. This would have a small impact on tax receipts as only 13% of Stamp Duty comes from properties worth less than £250,000.
“The Government needs to develop a more innovative and fairer solution to Stamp Duty Land Tax by reviewing both the thresholds and the current ‘slab’ mechanism, and such a review is long overdue.”
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