Foreign owners of UK residential property face a new capital gains tax (CGT) if they sell after 6 April 2015. Some property experts believe sales will rise ahead of this date, pushing up the supply of available London property this year. Here’s what you should bear in mind, if you’re thinking of taking this opportunity to buy a place of your own.

In December 2013, a new tax affecting foreign owners of UK property was announced by George Osborne, UK Chancellor of the Exchequer. “It is not right that those who live in this country pay Capital Gains Tax when they sell a home that is not their main residence, but those who don’t live here do not,” he told the UK parliament as part of his Autumn Statement. “That is unfair, so from April 2015 we will introduce Capital Gains Tax on future gains made by non-residents who sell residential property here in the UK.”

HM Treasury and HMRC have now published a consultation document setting out their proposals which are broadly that capital gains will apply: To non-UK resident individuals, trustees, certain closely-held fund structures and companies; On the disposal of UK residential property, including rental properties; and Capital gains tax will be charged on the increase in value of the property from 6 April 2015 onwards. The Consultation is open for comments until the 20 June 2014 and the final version of the rules should not be expected until the end of the year.

In the meantime, anyone considering buying a property in the UK in the near future will need to bear such things in mind and keep an eye on official announcements from the UK tax authority, HM Revenue & Customs (HMRC).

Please note that Barclays does not give tax advice and you should seek independent advice tailored to your individual circumstances.

Why the new tax is being imposed

One of the reasons for George Osborne’s decision was the rapid growth in London property prices, which many property experts believe could turn into an investment bubble. The rate of annual growth in London property prices was more than double the UK average in 2013. You can find out more about this trend, and about what’s happening in specific boroughs of London, via the UK's Office for National Statistics.

Property experts agree that international buyers were responsible for much of this growth. For example, UK property firm Savills estimates that, in the year to June 2013, 70 per cent of new-build properties bought in Central London went to foreign investors, while 30 per cent of the capital’s luxury homes worth more than £1m were bought by non-UK residents.

At the time of his announcement, the Chancellor said the new tax would bring the UK more into line with other countries – for example, non-residents pay CGT on property sales in the US, and in European countries such as France, Spain and Switzerland. It also follows a similar change in the rules that occurred in April 2013, when CGT became payable on UK properties sold by companies – including those based offshore.

What happens next?

It is still too early to tell in what ways the new CGT will affect the London market, if at all. However, the reaction of property companies has been mixed. Some predict that many foreign owners of UK property will decide to sell before the April 2015 deadline, to avoid having to pay any CGT, and that the supply of available UK properties will therefore increase.

Others suggest that foreign investors in London property will remain “unfazed” by the new tax, because they feel it still represents a “safe haven investment” compared with other types of asset, and that prices in the capital will therefore continue to rise.

If, on the other hand, you are considering buying a UK residential property, you will need to factor a CGT estimate into your calculations. Many foreign buyers are attracted to UK property because it gives them a place to use as a second family home while acting as an investment.

However, any gains you could make on such an investment would obviously be affected by the new CGT going forward. You can read more about the various costs involved in buying a London property, and what you should consider before committing to a purchase in the UK capital, in our article “Buying a London property”.

The new CGT rules: what we know

The new CGT will come into force 6 April 2015. Any sales of UK residential property made before that date, whether of a main residence or an investment home, owned directly by non-resident individuals should not incur a tax charge. The intention is that individuals will pay the same rate of capital gains tax as UK resident individuals: currently either 18% or 28% depending on whether they are higher rate tax payers. The government will confirm the rate for non-UK resident entities at a later date.
In April 2013, the UK government introduced a similar rule for companies that bought UK residential properties. When this rule came into force, it applied to future gains in property value only and did not include any retrospective CGT charge. The Consulation proposes that they will get the annual exemption from CGT.

Help with your London property purchase

Barclays International Banking offers a range of sterling mortgage products aimed specifically at international buyers who may be interested in the UK market. These include fixed-rate mortgages for those who wish to be clear in advance about the level of their monthly repayments, variable-rate mortgages that track the Bank of England base rate and a mix-and-match option that includes elements of both types. These loans will be secured against the property. If you don’t keep up repayments, you may lose the property.

To find out more about how Barclays International Banking can help you please call us on +44 (0) 20 7574 3212* or visit our website

If you have a Relationship Manager1 with Barclays International Banking, they can help you consider what costs to bear in mind if you’re thinking of buying a property in the UK. They can also put you in touch with one of our Mortgage Advisers, for further advice and guidance.