UK property has been one of the economy’s greatest assets for the past 30 years, drawing investors from across the globe to the shores of the UK in the knowledge that investments, especially in the capital, provide consistent returns. For those able to invest in the market with the highest average transaction price in Europe this knowledge has made London the destination of choice, especially when coupled with the various “tax breaks” that could be enjoyed when investing in UK property.
As is to be expected from individuals spreading substantial amounts of wealth through various forms, there were plenty of ‘processes that these investors could take to reduce the impact of those sneaky little taxes. This had been an area that the UK government had been ‘lenient’ on, supposedly in order to keep attracting investment into the UK as other options become less and less secure with every passing day. This stance has changed recently as new taxes have been introduced that might make new investors change their mind and have current investors left open mouthed.
In its simplest terms:
“Any foreign owner of UK residential property is now liable to 40% tax on death based on the value of the property at that time and irrespective of structure.”
From one side of the coin, it might seem a surprising time to put in place new taxes that will clearly negatively impact the decision of new investors. The government must believe that the amounts it is currently missing out on, through various avoidance measures used by investors is far greater than the amount that could be lost through the introduction of this law. This will also almost certainly impact of the business that spearhead the varying manners of manipulating tax laws, as this makes their current plans null and void.
This new tax stops the purchase of these properties by trusts and offshore bodies (among many others) to take advantage of the tremendous tax breaks afforded to them. Further measures were introduced by the UK government, such as the ATED tax that was put on to affect all properties classified as dwellings. Despite it being such a torrid tax for foreign investors it certainly doesn’t bring an advantage to the those based in the UK, but can be seen as more of a “leveller” as foreign owners work with taxes similar to the ever-chastised inheritance tax.
Property in the most affluent areas of London such as property in Mayfair, Knightsbridge and beyond will be the areas most harshly affected by this 40% tax. Mayfair in particular has recently just begun the construction of more ultra-prime developments that will provide over 500 new homes in the area in the next five years. This new tax is almost certainly not the news that developers in these areas would have been hoping for as British based investors seem reluctant to invest large sums of money until Brexit is finalised. With the tax being taken from the estate before it goes to beneficiaries of the deceased, even selling the property doesn’t relieve foreign investors from this tax.
This may seem like a steep new introductory law, however it is now similar to tax laws and legislations across many countries around the globe. Various parties have also disclosed how they feel the flagrant abuse of the UK tax system has lead to this scenario in which the government has been forced to take action. Research from the BBC shows that foreign owners account for 1/10 houses in Westminster and over 6,000 properties in the flourishing boroughs of Kensington and Chelsea. Beyond these points the registered overseas locations are quite astonishing. With the tiny haven of the British Virgin Islands the home of almost a quarter, £35 billion, of all the foreign owned property in England and Wales.
With future options of foreign investors still unclear, those selling and developing new properties in the UK aimed at this audience find themselves in an awkward position. It is clear to imagine that they won’t be announcing this new tax law to their prospective clients for worry of losing a sale, but need to be aware of the repercussions of this new legislation. The same can be said for the firms that had previously been the “go-to” for foreign investors to gain a financial advantage., as their services become useless, they risk losing all their custom by alerting their clients to this news.