I have a good friend who runs a tax consultancy firm for Non-Resident landlords and who is always completely up to date with property related tax and legal matters. He is a cynical old sod but usually right, so I do like to pick his brains whenever there are any new legislation proposals in the pipeline. We end up having terrifically nerdy conversations about legal and tax issues and their potential ramifications for the property market.
He takes the view that the simple fact that the Govt. has raised the issue of charging Capital Gains Tax (CGT) and an Annual Property Asset Tax (APATax as I shall herby name it!!) on offshore company structures may actually lead to many of the companies being wound up. I quote him; 'The CGT exemption has undoubtedly contributed significantly to the current state of the upper echelons of the London property market. There is a 'ready made' case for withdrawing it on the grounds also that it is contrary to the general aim of EU tax policy and tax harmonisation. (This handy excuse was used by HMRC to justify the withdrawal of Personal Allowances as a matter of right from nationals of Commonwealth countries from 2010-11.) See what I mean about our nerdy conversations!
George Osborne has said that he wants to implement CGT and a property based wealth tax in April 2013 for non-resident, non-natural persons i.e. offshore company structures Perhaps I am naive but I would argue that we should take him at face value.
So here are a few suggestions of mine for discussion and his consideration;
To me it is simply not fair that any Non-Resident should be CGT exempt when a UK based investor would be paying 28% CGT on any gains when selling a property other than their own home (Primary Residence). By definition, a Non-Resident does not have a Primary Residence here, so should pay CGT on ALL their residential property in the UK however it is held. I would suggest a special, internationally competitive, rate of 10% or 15%. Not enough to put foreign investors off but enough to raise some revenue and help to stop the distortion to the London market that the CGT exemption creates.
CGT is a tax that people seldom resent paying as it is, after all, only payable where there is a gain in value during ownership.
On the other hand SDLT (Property Purchase Tax) is now 7% on purchases above £2m. This is going in completely the wrong direction! Until 1997 when our friend Gordon Brown took over the Treasury, Stamp Duty was 1% all the way up.
With rates this high people are reluctant to sell and re-buy property thereby inhibiting their ability to move. This is bad for the free movement of labour and the economy as a whole. Transaction levels are down by about 40% in the London area. High transaction taxes are known to lessen turnover so the increase in revenue to HMRC will be pretty limited.
Any revenues raised through CGT on Non-Residents should be put towards reducing SDLT which will directly lead to increased turnover.
If an Annual Property Asset Tax (APATax) were to be charged to any Non-Resident owners it should, in my view, be at a rate of about 0.5% of the asset value. This could be self assessed with HMRC having the right to check it, as they do all tax returns. The fact that such a tax existed might help to encourage Non-Resident owners to let out their properties rather than keep them empty for much of the year as is the case now. This would be good for the supply of rental property and help ease the constant pressure to build new properties in our Capital city.
I welcome any feedback on the points I have raised. Do email me firstname.lastname@example.org
And my cynical old friend who is always right is; Chris Mercer of MTM email@example.com. Do contact him if you are a Non-Resident property owner.
Patrick Bullick is MD of STANLEY Chelsea and Chairman of The National Association of Estate Agents (NAEA) London Region.