Proposals to introduce a capital gains tax for overseas property investors have been scaled by the government, to the relief of all those involved in the private rented sector and the wider property investment community.
The plans were put forward for consultation, suggesting government ministers might impose a new capital gains tax on profits made by overseas investors in UK real estate. While the idea did come with some concessions, representations were made to ministers, pointing out the potentially damaging consequences to markets, should overseas investors find the UK to be a less attractive market, as a result of the new tax.
Among those making strong representations was the British Property Federation, which noted that overseas institutional investors are playing a key role in opening up the UK rental property market. Already this year, the Abu Dhabi Investment Authority has backed Fizzy Living with a £200 million investment, for example. Were the proposals to become law, the future of such investments could be put in danger.
As a result, the government has made clear in an announcement that institutional investors will not be affected by any changes to the rules from April 2015. In a statement, it said: “This should ensure that the extension of CGT will not apply where a disposal of UK property is made by a diversely held institutional investor that holds UK residential property directly, or by one which invests indirectly through an arrangement that is not controlled by a few private investors. The government will draw on existing legislation to achieve this.”
“We are thrilled that the government has recognised that large-scale institutional investment is crucial to increasing the UK’s housing supply, and that imposing capital gains tax on overseas funds could be detrimental to the economy,” said Ion Fletcher, director of policy (finance), British Property Federation. “We are currently facing a housing crisis and it is important that government maintains a stable tax environment to attract overseas capital, which will help deliver economic growth. However, much work remains to be done on the all-important details of the new tax and we will continue to engage with government to ensure that overseas investment is safeguarded.”
“Our consultation response outlined particular concerns about the impact of government proposals for investment in the nascent build-to-rent sector, which has so far relied on overseas institutional investors for a number of significant projects, so this announcement is reassuring in that respect.”