UK Buyers of Foreign Property Could be Hit by Tax Reforms.
UK buyers of investment properties and second homes overseas could be hit by the Chancellor’s recent raft of tax reforms as well as buyers of domestic properties. In particular, the change to stamp duty announced by George Osborne in the Autumn Statement may affect those buying a second property whether it is in the UK or not.
The stamp duty reform will take effect from 1st April, and will add a 3% surcharge to stamp duty rates for those buying a residential property other than their main home. This applies on the purchase of any property worth more than £40,000, which is true of the great majority of UK residential properties.
The changes were intended to target investors in buy-to-let properties, as a complement to previous measures designed to help owner-occupiers better compete with landlords in the UK’s property market.
However, some are concerned that the wording of the reform is too vague, and that it could affect a much wider spectrum of buyers than the government originally intended. The consultation document is lengthy, complicated and, some have argued, lacking in clarity. Some sections of the document seem to indicate that the rules apply only to the purchase of properties located in England and Wales, which would fit the government’s apparent intentions in introducing the surcharge. Other parts of the document, however, seem to suggest that the charge would be levied on the purchase of any investment property or second home by a UK buyer, located anywhere in the world.
If the rules were applied to those buying overseas property investments as well as in the UK, the consequences could be significant. Every year sees around 35,000 taxpaying British residents buy an overseas property, and all of these could potentially be affected by the new rules.
There are other unintended consequences that, according to some experts, the lack of clarity in the new rules could lead to. For example, there are fears that the laws could potentially apply to people who are neither landlords nor second home buyers in the usual sense. Parents who help out their children with their first home purchase could potentially be hit with the stamp duty surcharge, as could those who buy properties in order to provide a home for a relative whose financial situation is tighter than their own. These non-commercial landlords and property buyers are already in the unenviable position of being subject to capital gains tax when they sell but missing out on tax relief for repairs and other ongoing costs while they still hold the property.
There are calls for the government to spell out, clearly and definitively, exactly who the 3% surcharge will apply to and who it will not. In the meantime, however, uncertainty continues and the contents of the consultation document shed little light, with some sections seeming to outright contradict others.
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