OVERSEAS residents will be made to pay capital gains tax (CGT) when they sell their homes in the UK under changes announced by the chancellor yesterday, in a move expected to raise up to £345m by 2018.
The Treasury will also raise money by halving the tax-free period for homeowners letting a property in which they have previously lived. The grace period will be slashed from three years to just 18 months from next April.
“It’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not,” the chancellor said.
But while only people based in the UK pay the tax – typically levied at 28 per cent – to the Treasury, those based abroad are subject to similar tax if imposed by their own governments.
Osborne expects to raise up to £345m by 2018-19 based on current house prices and transaction values.
But the amount raised could be closer to £125m when taking into account the reaction to the announcement, which could spark a number of homebuyers to sell before 2015. Foreign homeowners from countries where there is no capital gains tax, such as the United Arab Emirates and Monaco, will be the worst affected by the change.
Knight Frank’s Liam Bailey said the change will only have a “marginal impact” on demand and that tax was not the principal driver for most international buyers. But PwC’s Paul Emery said the tax will be seen as a “broken promise” to investors who took £2m-plus properties out of company and offshore structures to avoid the Annual Tax on Enveloped Dwellings, which came into force in April.
On the buy-to-let changes, KPMG’s Daniel Crowther said:“What has been announced reduces the incentive to flip a house – buy a property, use it as a principal private residence and continue to benefit from the CGT exemption for the next three years.”