Chancellor’s plans draw a flak from the property industry
The Chancellor’s plans to impose restrictions on foreign property investors meets criticism from the property sector
In a move by Chancellor Philip Hammond that could exaggerate issues for the already troubled property sector in the UK, reactions from the property sector have begun to pour in. Even some from the public have questioned the timing of such move and sense a political aspect of it as it could be the result of the June snap polls outcome in which the Conservative Party failed to muster support of young Britons.
The move by the government will scrap an exemption for foreign property owners which will mean foreign investors will not be subjected to capital gains tax on property. Under the plans, overseas sellers of property would have to pay around 19 per cent of profits from sales of property to HMRC but it exempts institutional investors such as pension funds. It is speculated that recent concerns around offshore companies and cases of tax evasions may also have propelled the decision by the government.
The property industry has said that the move will deter foreign property investors from buying property in the UK due to the changes that will make them pay a certain amount when they sell their property. They accused the government of proceeding with the decision without considering the consequences of the rules on the London property investment market where 75 per cent of the deals in central London involve foreign capital. The demand for central London property is so high that the investment in 2017 could break the previous record of £21.6bn, according to a report by the Savills. Industry experts were concerned that the law might adversely affect major infrastructure projects as they need foreign cash and investors will think twice before investing in the country.
Walter Boettcher, chief economist at property agency Colliers International said the tax change could put some of this business in jeopardy. However, not everybody is pessimistic as Robert Moir, partner and head of corporate real estate at Pinsent Masons said that a lot of investment from China, the Gulf and Canada is taking place and things will not change as the fundamentals of UK property are reasonably strong.
But, Ion Fletcher, director of finance policy at the British Property Federation (BPF) said that he is concerned about how limited those exemptions might be. He expresses his surprise and disappointment that the Government did not consult anybody and just announced it the decision. Although a consultation was published alongside the budget documents, it simply asked respondents about the form of the proposals. But the consultation gave a hint as to the Government’s motives as it said that “unlike most major jurisdictions”, the UK does not currently exercise its full taxing rights.