Concern over taxing overseas London house buyers

Concern was expressed by overseas investors who buy property in London after reports that the British government is considering imposing capital gains tax on them. In London about one third of property buyers are now from overseas, according to the latest estimates published here. With demand for houses rising all the time, this is having a knock-on effect on prices across the UK, experts claimed. The overseas investors have also been blamed by campaigners for inflating a "house bubble" by buying up prime property in fashionable expensive areas here. According to a report drawn up for the Mayor of London Boris Johnson in December 2012, the problem is even more acute in those best prime London locations, such as Kensington and Chelsea, where up to 75 per cent of buyers are from overseas. Some campaigners have proposed the introduction of a property speculation tax. A number of countries such as Switzerland, Australia and Singapore already have controls on overseas investors, the experts noted. According to a report by the business think tank, the Smith Institute, overseas buyers are estimated to have invested over seven billion pounds in property in London in 2012. Meanwhile, persistent press reports suggest that the British Chancellor, Finance secretary George Osborne is considering slapping this new tax on foreign property investors soon in an effort to tackle this so-called "house price bubble" in London and the South East of Britain. The British media suggested that he may impose the new measures in his Autumn budget Statement next month. The Treasury has already provisionally costed the measures and is awaiting a final decision from Osborne in the coming weeks, the reports said. While those living in Britain have to pay capital gains tax (CGT) of 18 pct or, more commonly, 28 pct, if they make a profit when reselling all but their main home, non-resident property owners are currently exempt for all their properties. House prices in London rose by nearly 9 pct last August, compared with around 2 pct elsewhere in the UK, according to the Office for National Statistics. In some of those exclusive fashionable areas the average home is now worth almost 30 times the average local salary. According to estate agency Knight Frank. 65 pct of overseas buyers intend to rent their London properties rather than live in them. However, the UK Treasury's own internal research, showed that the new tax would be unlikely to raise significant sums - tens of millions rather than billions - but would address concerns that overseas investors might enjoy favourable treatment when it comes to property investment, the experts added. Some government officials fear that the proposed measures would undermine the Government's message of keeping Britain "open for business". Others are worried that they would cause a sharp fall in foreign demand for London property, which in turn could undermine the broader UK housing market ahead of the next election, expected in 18 months time. For his part, the spokesman for David Cameron the UK Prime Minister said recently it was "speculation" to talk of a tax to tackle a London housing bubble. But he added: "We need a range of approaches on housing which very much recognise that in large parts of the country the value of homes has barely increased." In the meantime the experts contended that demand for homes from Russian rich "oligarchs" and Middle Eastern investors has helped spark the price boom. But the Times newspaper quoted one of London's biggest estate agents, Savills, as saying that taxing foreign investors who are purchasing property in the British capital would not work. This is because London is so much cheaper than other major cities, such as New York, Hong Kong and Singapore. Savills found that the cost to a foreign buyer of owning a London property would increase from 8.5 pct of its value to 11.9 pct if the government new tax would become law. This compared with an investment cost of 18.1 pct for New York, 19.8 pct for Singapore and 26.5 pct for Hong Kong. The figures are based on holding the property for five years.