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On the 6th of April things will change for foreign buyers. Should you still buy property in UK?

What is changing?

At present, non-residents are not generally subject to UK Capital Gains Tax (“CGT”). From 6 April 2015 all non-UK residents will be subject to CGT on gains on disposing of UK residential property. The CGT will be charged on any gain after 6 April 2015. This is a major change to the UK tax system and brings non-resident buyers in to line with UK buyers. The present system makes the UK a very attractive place for foreign investors to buy property. The UK, and in particular London, is already the place of choice for foreign investors because it is considered a safe, stable environment to invest with a fair legal system. The tax system was also attractive to foreign investors because they could make gains without suffering any tax in UK. This element is about to change.

Who is exempt from the changes?

Certain classes of communal property such as care homes, children’s homes or purpose-built student accommodations are exempt from the changes and will still not be charged to CGT. The charge will not apply to institutional investors or companies and other entities such as collective investment funds where there is genuine wide ownership.

Who will be affected by the changes?

The charge is targeted at foreign ownership of UK residential property by individuals and privately owned companies. Unlike the Annual Tax on Enveloped Dwellings (“ATED”) regime, the charge will cover both residential properties used by the owners as a home and rented out as an investment. Where the property is owned by a company and used by the owners as a home, the ATED regime will normally apply in priority to the new charge.

What is the rate of tax?

Tax rates will broadly mirror those for UK residents, with individuals and trusts taxed at up to 28%, and companies at 20%. Tax will be levied only on the part of the gain arising after 6 April 2015: the taxpayer will be able to choose either to apportion the gain on a time basis or to treat the property as having been acquired on 6 April 2015 at its market value on that date.

How will it affect the market and what should you do?

It will be interesting to see how the changes affect the market. London has been such a popular city for foreign investment and it is likely that foreign investors will pay the extra tax because of the other benefits of investing in UK. Having said that, the London has a lot of competition from other cities in Europe and US. The new tax rules may tempt others to look elsewhere. If you have an investment in London now, it may be worth valuing it before the new rules come in so that you have a contemporaneous valuation rather than relying on a valuation years afterwards. It may also be worth considering other types of structures such as offshore pension scheme’s which are not covered by the new rules.

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ELS Legal is an international law firm based in London with more than 50 partner offices across the world. As part of the Cathay Associates global legal network, we are the first choice law firm for a number of British businesses and overseas clients.


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