Imposing Capital Gains Tax (CGT) on overseas buyers of UK residential property is unlikely to have a long-term impact on foreign investment but will hinder development, according to Jones Lang LaSalle. "The changes could mean a net reduction in new home construction and worse still may very well reduce overall tax take, costing the UK taxpayer directly," the firm explained in a statement.
Currently, only domestic investors are subject to the 18 per cent to 28 per cent CGT on the disposal of property purchased. However, changes by the government will encompass foreign buyers in this charge - something many market commentators claim has brought further uncertainty to the sector. Part of the problem, Jones Lang LaSalle claims, is widespread thinking about the investor market in terms of 'foreigners' and 'Londoners'. "With 35 per cent of the capital’s population born outside the UK and a high proportion of Brits born outside London, in this city being an outsider makes you a local," the company said.
Indeed, it is the city's "long history of openness" that enables it to be such a global hub. Jones Lang LaSalle believes that politicising a tax to target non-voting, rich overseas investors misses the point and could harm London's chances of "being at the centre of the global capital flows". In fact, it is this fluidity of international capital that makes the capital's residential market what it is. Opposed to simply focusing on the prime segment, 85 per cent of overseas buyers are investing outside of prime London.
This trend is a vital one, especially in a post-credit crunch world. International buyers have a key role in triggering development finance, which requires around 30 per cent sales. With non owner-occupiers making up a significant proportion of those buying off-plan, without investors many developments could become 'unviable'. This will dramatically affect supply, which is already too low to cope with demand. In order for the UK to address its housing shortage, it needs to keep off-plan purchasing activity ticking over at a healthy level. Of course, with around half of all new build in London purchased by overseas investors last year, the writing is on the wall for policy makers.
- Friday 03 January 2014