The forthcoming CGT changes will see foreign property owners forced to pay tax on any gain in value on UK properties made after April 2015, to be payable at disposal. This marks a change from the previous system which taxed only UK second home owners on the rise in value of their properties.
The exact details of how this capital gains tax will be implemented will be dictated by the results of a consultation in early 2014, but it is widely expected that the rate will echo the UK’s domestic rate of 18 to 28%.
According to IP Global, an international property investment company that builds strong relationships with UK developers through a guaranteed bulk sales purchase model, there are some concerns that despite the expected minimal effect this tax will have on their returns, some investors may be confused about the ongoing investment viability of UK property.
It may be that traditional trade show marketing, for example, may become less effective, and agents who rely solely on such sales avenues may struggle to secure strong numbers in their overseas markets.
‘Measures like this new CGT are standard in most global markets. This recent move by the government simply aligns the UK more closely with international standards and shouldn’t scare off potential investors as long as they are fully informed of the situation,’ said IP Global chief executive officer Tim Murphy.
‘There is still a wealth of assets that makes the UK an attractive investment market, such as its political stability, economic strength and favourable currency exchange rates. There is huge potential return on investment, particularly in London, given the significant housing undersupply coupled with rising demand and a wealth of regeneration areas,’ he explained.
‘While we don’t expect to see the sort of mass panic and withdrawal from the UK that has been predicted in some quarters, we do believe the sort of highly personalised and trusted investment advice offered by IP Global will become even more valuable as investors react to the news,’ he pointed out.
He added that CGT changes will hit short term speculators harder than more shrewd long term investors as an investor holding a property for 10 years will only be subject to an effective annualised CGT rate of 1% to 3%, further highlighting the importance of finding buyers with a focus on long term wealth development.
Murphy also said that remarks from Mark Carney, Governor of the Bank England, make the case for personalised investment consultancy for overseas investors even stronger. He explained that while on the surface Mr Carney’s remarks, which included the suggestion that lending requirements would be tightened if necessary, would seem to be a negative development for investors, those seeking high level advice before investing are far more likely to prefer the prospect of secure and stable market growth over the chance of another bubble and potential crash. Such investors would be therefore more inclined to take the Bank’s proactive stance as a positive factor when assessing the viability of investment in UK property.
‘While property flippers with an eye on short term gains may well be put off by Mr Carney’s comments, IP Global clients tend to see the value of investing for the future and therefore the importance of less risky, stable markets that still offer the potential for solid medium to long term growth,’ he added.
