Foreigners to pay 'oligarch tax'

Foreigners will have to pay a so-called "oligarch tax" when they sell UK properties under plans to cool London's overheated housing market and level the playing field with British taxpayers.

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Aerial view of houses in London, as Osborne confirms non-UK residents will have to pay capital gains tax (CGT) on property sales

Foreigners will have to pay a so-called "oligarch tax" when they sell UK properties under plans to cool London's overheated housing market and level the playing field with British taxpayers.

Chancellor George Osborne confirmed non-UK residents would have to pay capital gains tax (CGT) on property sales from April 2015, with a consultation on how best to introduce this due early next year.

The move is designed to help ease the property bubble in London, which has seen prices race higher in the capital - up 8.7% year-on-year in October - far outstripping growth elsewhere in the UK, according to the latest Land Registry figures.

This is thought to have been fuelled by a sharp increase in foreign ownership, in particular from wealthy overseas investors such as Russian oligarchs snapping up properties in prime locations, attracted by the UK's relatively generous tax regime.

The move will also bring the tax treatment into line with resident British investors, who have to pay CGT of typically 28% if they make a profit when reselling all but their main home.

Mr Osborne said it was "not right" that Britons had to pay the tax while foreigners were exempt.

He added: "Britain is an open country that welcomes investment from all over the world, including investment in our residential property.

"But 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 plans were widely expected after Deputy Prime Minister Nick Clegg said last month the Government was considering the move .

But the announcement met with initial scepticism from experts concerned it would fail to dampen the London housing market or raise much cash for the Treasury, while potentially hitting the attractiveness of the UK for property investment.

It is likely to see CGT charged at 28%, although forecasts from the Office for Budget Responsibility show it will only start to bring in revenues from 2016/17, and even then it will be a paltry £15 million, rising to £40 million in 2017/18 and £70 million in 2018/19.

Rosalind Rowe, real estate tax partner at PwC, said: "The tax can be easily avoided - the owner just retains and never sells the property.

"It is unlikely to dampen the heat of the housing market and the costs of policing and collection will result in a potential net loss of revenue for the Exchequer.

"It also gives the wrong message - is Britain really open for business?"

Ray McCann, a partner at law firm Pinsent Masons, added: "It seems unlikely that the charge will do anything to take the heat out of the London property market - but it is to be hoped that it does not damage the overseas investment in the UK property market on which our economy has come to rely."

He believes many non-UK residents could end up paying little more than they already do, given double taxation treaties with the UK, where any UK tax payable is credited against liabilities in their home countries.

But some countries do not impose capital gains tax at all.

There are also worries over the impact on British expats, many of whom own UK properties as investments.

But it is thought that the tax will only apply to tax gains that arise after April 2015, and not historic gains.

The Treasury also announced that the final period CGT private residence relief would be cut from three years to 18 months to reduce the incentive for those with multiple homes to exploit the rules.