London Property has for long been a favorite investment product for overseas investors. Having seen high returns, at relatively low risk, in a mature and stable country and with sustained low interest rates pushing house prices ever higher; there is little doubt as to why London has become a favorite investment for Overseas Investors. But are things changing? Will future generations of Overseas Investors park their money elsewhere?
What Overseas Investors have grown accustomed to
As we introduced in our article on the Panama Papers, for long, wealthy international investors have used London as a safe haven to park their savings.
As the British government remained amenable to a tax optimised, pro property investment market, investors have been able to use a series of offshore structures and trusts. In fact, using a series of offshore structures, international investors have been able to circumvent paying Capital Gains Tax (CGT) which stands at 20% in the UK but also by holding property deeds offshore, they have been able to avoid paying stamp duty when transferring a property investment from one beneficiary to another. Further benefits include the ability to avoid paying Inheritance Tax, and while maintaining their investments under total privacy.
The changes that are coming
Increasingly there are events and changes occurring throughout the market which could make investing less attractive to Overseas Investors. Firstly, with the leak of the Panama files, the cloak of privacy under which many investors have had the privilege of operating under has been burst wide open and with it has come a large degree of governmental scrutiny. This has only accelerated the Government’s move towards creating a public register for all ultimate beneficiaries of offshore companies. The ultimate intention being to make them do well on their financial obligations (which may include paying stamp duty and inheritance tax and more).
Another anti-tax avoidance measure which the Government is putting in place is the Annual Tax on Enveloped Dwellings (ATED). The ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000. This new yearly tax starts at £3,500 for properties worth more than £500,000 but rises to over £200,000 with the value of the property.
Property developers who are based offshore are also being scrutinised by the Treasury. The HMRC recently started monitoring property developments in the UK which are being financed by overseas money. And the 2016 Finance Bill is expected to ensure that offshore structures cannot be used to avoid paying UK tax on profits generated from developing property in the UK. The Treasury expects to raise £2.5bn by 2020 in this arrangement alone.
Yes, many are of the opinion that all this is not enough and the Government should impose all offshore companies which own property in the UK to file accounts and beneficial ownership information as if they were based in the UK.
Alot is changing for Overseas Investors keep an eye on londonproperty.co.uk to stay on top of it all.