UK Chancellor George Osborne is expected to announce in his Autumn Statement on Thursday that capital gains tax (CGT) is to be charged on UK property sold by British expatriates and overseas nationals.
When questioned by SUR in English about the rumoured new measures, which were leaked to the British press last week, and which have been described as a “stealth tax raid”, the Treasury declined to confirm or deny the reports.
It is widely thought that such a move is aimed at tackling fears of a housing bubble in London and the southeast of England being created by wealthy overseas buyers who purchase property in these areas solely as an investment. This has the effect of inflating prices and pushing many British families out of the market.
Of the mooted proposals, chief executive of the British Property Federation, Liz Peace, said: “A lack of new homes is the reason prices are rising, not because of foreign investors. This is just a kneejerk policy to raise more taxes that probably won’t pay off because owners will just hold on to the properties until they are forced to sell.
“This is a symptom, not the cause of housing problems in London and what we should really be looking at is encouraging the building of more homes.”
Under the current rules, British homeowners are liable for capital gains tax if they make a profit from selling a property that is not their primary residence, but British citizens who are resident abroad and foreign nationals are exempt.
Should the new speculated new policy come into effect, there could be capital-gains levy of 28 per cent on the sale of second homes in the UK that are owned by overseas investors, including expats.
The move is, say analysts, expected to generate an estimated £100 million for the government.
Consequences for expats
According to latest official figures there are approximately 4.7 million British expats worldwide and while it is not known how many of these are classed as ‘non UK resident’ and still own property in the UK, cross-border financial experts tell this newspaper that the changes could have significant consequences for those who do.
This is because the CGT rule is often used by expats who leave Britain, rent their former home and then sell it when overseas to escape paying CGT of up to 28 per cent on any gain generated by appreciating property values.
Andrew Oliver, senior area manager of deVere Spain, comments: “The consequence [of this leaked policy] is retrospectively and unintentionally punishing expats who have decided to keep a base in the UK.
“The Double Tax Agreement between Spain and the UK, which is just about to be updated, gives the taxing rights to the country where the property is situated, meaning that the UK retains the right to tax the gain of the property in the UK when sold. This gain would then be imputed into a Spanish tax return with tax paid at a given rate. If there are other gains in that year in Spain the payment of tax at a higher rate can be used to offset tax due in Spain.”
While Richard Alexander of Richard Alexander Financial Planning affirms: “An expat, who has lived in Spain for a number of years and sells a property in the UK, may well be exempt from UK capital gains tax under current rules but they should be declaring that gain in Spain in any event.
“An expat who has lived abroad for a number of years and then who returns to the UK and lives again in that property, may well avoid CGT, but strictly speaking, the gain in value during the period when the property was not their main residence, should be assessed for CGT.”
For his part, Mr Oliver concludes: “The only other strategy to avoid the [rumoured] new legislation is to sell before it comes into effect.”
Benalmádena resident Sally Curruthers who has a home in south west London is one expat who could possibly been adversely affected should the UK capital gains tax regulations be modified.
She says: “My intention was to put my flat on the market in about five years’ time, but I will certainly be doing it sooner rather than later if this policy comes into effect. Why would I wait to hand over more money to the taxman, who is deciding to change the rules on whim?
“To my mind, they’re taxing foreigners and expats as we’re seen as a soft touch as we can’t or don’t vote.”
Proponents of the rumoured measures argue that the step would bring the UK into line with most other European countries, including Spain, thereby “creating a level playing field.”