As widely anticipated, George Osborne has cast the net of Capital Gains Tax (CGT) wider than ever before and has announced plans to tax future capital gains arising from the disposal of UK residential property by non residents.
In 2013 non resident companies that owned property worth more than £2 million would be subject to CGT on any gains, however, non resident individuals remained unaffected. The Chancellor's announcement indicates that non residents will be subject to CGT on the disposal of UK residential property in the same way that UK residents pay CGT on their second homes. The new CGT would be introduced in April 2015 and would only impact future gains arising after that date.
Immediately prior to the announcement, Yolanda Barnes, director of residential research at Savills, said if the tax were to be introduced it was unlikely to turn overseas investors away from buying properties in Britain. "Our analysis of four major world cities - London, New York, Hong Kong, and Singapore - shows London has been particularly good value for overseas purchasers in the past."
Richard Kirke, managing director at Colliers Hong Kong agreed and said: "The London apartment market remains extremely active. Prices are continuing to move strongly north. A capital gains tax may squeeze a small proportion of international investment out - but the London market has significant local demand so such a measure is unlikely to have a significant impact on prices," He also said that "A (UK) Capital Gains Tax for foreign investors would need to be at a draconian level to mitigate the interest of foreign buyers."
The Government's proposals bring the UK into line with many other countries, who already tax gains on property regardless of the residence of the owner.
In good news for the High Street, the Chancellor also announced a reduction of business rates by £1,000 for small shops, cafes and pubs (with a rateable value of up to £50,000) and a new temporary reoccupation relief for new occupiers of retail premises that have been empty for over 18 months.
Specific details on the Government's proposals will be available following their consultation, which is to be published in early 2014.
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