Chancellor Has Imposed CGT On Foreign Individuals Buying In UK

The much-predicted imposition of Capital Gains Tax on foreign individuals buying in the UK has just been announced by the Chancellor in his latest Autumn Statement.  Ordinarily this tax could make sense. However, it is the third tax imposed on the property sector when you add the Stamp Duty and Maintenance Tax changes of the Budget of 2012 where the rate was increased by 300% from 5-15% for corporate bodies and an annual Maintenance Tax of up to £150,000 also applied.

These latter taxes are weighing down heavily on foreign buyers over £2million and has resulted in some 70% drop in transactions in the suburbs of London as well as outside of London.

In fact, the buyers for prime and super prime properties in central London have also been dramatically reduced although transactions are still taking place since there are invariably far more buyers that properties available at the best of times.

I would argue that prices are flat-lining in this sector, at best, and this could be the early stage of a recession.

With the specter of Mansion Tax looming (a forth tax) the longer term effects of these taxes should be studied and considered carefully since, if the trend continues, it could trigger a ‘top down’ recession that will percolate through to the lower ranges and before you know it you could have a fully blown property recession.

Where it not for these tax impositions on property, technically, there would be nothing to negatively affect sentiments as unemployment and inflation are moving downwards and the outlook is encouraging.

Lest we should forget we are enjoying at the moment the fastest growing economy of the G8 economies. But, this growth is consumer driven and consumers positive sentiments are intrinsically linked to the health of the property market, as we are a great and proud property owning nation.

At the moment the property market up to £2million in the Capital and beyond is doing well since the Stamp Duty Changes have not affected this price range (more than a co-incidence).

The cost of selling and buying over £2million is now 10% of the transaction.  For instance if you were selling a £2.5million house and wanted to buy a £3million property you would need not £500,000 but £800,000 (7% stamp duty 2% agents fees and the balance in solicitors fees).  This is why there are far fewer transactions and the trend is getting worse.

In addition, this new tax imposed by the Chancellor today will raise between £10-100million which is de minimus in Exchequers terms and will probably not raise the money to cover the costs of the tax.  This means every taxpayer will have to subsidise this cost.  I am not sure that when the public realise this it will be seen, by them, to be a wise investment.

The first rule in taxation must be that it should be designed to raise the most amount of money (rhetorical).  Taxes that don’t pay for their collection costs are usually the brainchild of socialistically inspired, vindictive, protagonists and therefore I question the wisdom of the latest third tax being imposed today.

Taxation must always be a revenue raising device and not a penalty against success. People should pay a fair tax to help run this proud country of ours.

It is worth remembering that the robustness of the London property market is legendary.  An illustration of this is the speed of the recovery of the London market after the crash of 2008, that was approximately one year to 18 months, when all the other Capitals of the world were suffering a recession/depression for a considerable while longer and some have still to recover.

Overall, the good news on the economy is very welcome and we should certainly have confidence in The Chancellors economic management since it does appear that, at the moment, the UK has got the strongest growth of the G8 countries and that is something to crow about.