Britain considers taxing foreign property investors as house prices soar

LONDON Thu Oct 31, 2013 3:20pm GMT

Britain's Chancellor of the Exchequer George Osborne speaks at a Thomson Reuters Newsmaker event at Canary Wharf in London October 22, 2013. REUTERS/Toby Melville

Britain's Chancellor of the Exchequer George Osborne speaks at a Thomson Reuters Newsmaker event at Canary Wharf in London October 22, 2013.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - Britain is considering slapping capital gains tax on foreign property investors, local media reported on Thursday, hours after data showed house prices rising at the fastest pace in over three years.

Such a move could ease fears of a housing bubble, particularly in London, where demand from cash-rich Russian oligarchs and Middle East investors among others has helped lift prices more than 10 percent in a year.

Some Britons feel they are being priced out of the housing market, although home owners generally welcome higher prices.

Sky News said Treasury officials had costed the measure ahead of Chancellor George Osborne's "Autumn Statement" on Britain's finances on December 4.

Spokesmen for the finance ministry and Prime Minister David Cameron said Sky's story was speculation and declined to comment further.

Overseas investors have been big buyers of London property over the past few years, lured by Britain's safe-haven status and the prospect of capital appreciation and attractive rental yields.

Estate agents Knight Frank calculate that foreign buyers account for 70 percent of all new-build property sales in prime central London.

Figures from the Nationwide earlier on Thursday showed house prices across the country rising at an annual rate of almost 6 percent - eight times faster than average incomes.

Britons have to pay capital gains tax - typically at 28 percent - if they make a profit when reselling any property that is not considered their primary residence. But foreign property investors have hitherto been exempt, unlike in many other European countries.

"Charging non-resident property owners capital gains tax on sales of second homes in the UK would bring the UK into line with what happens on most of mainland Europe," said Ronnie Ludwig, partner at accountants Saffery Champness.

"This could adversely affect the market for foreign second home owners in the UK, particularly in the traditionally up-market areas."

The plight of first-time homebuyers is moving up the political agenda ahead of an election due in 2015. The government has introduced measures to help less-well off homebuyers get mortgages but has had to fend off criticism that, by pushing up prices, its "Help to Buy" scheme simply makes matters worse.

Grainne Gilmore, Knight Frank's head of UK residential research, said it was hard to gauge how demand would be affected without seeing the small print.

"Tax is not the primary reason why global property investors come to London, but a change of this sort would have an impact," she said.

Property consultant Savills calculates the value of London property has risen by 140 billion pounds over the last five years to stand 14.2 percent above its 2007 peak.

It says 10 London boroughs - Westminster, Kensington & Chelsea, Wandsworth, Barnet, Camden, Richmond, Ealing, Bromley, Hammersmith & Fulham and Lambeth - now have an aggregate property value equivalent to the total value of Scotland, Wales and Northern Ireland combined.

(Reporting by Christina Fincher; editing by Guy Faulconbridge and Jeremy Gaunt)

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