Sunday Business Post – March 9th, 2014

David Johnson - Sunday Business Post

More capital punishment for investors?

Capital gains tax is set to hit non-resident property investors in Briton, and this has stirred up quite a debate among property professionals, writes David Johnson.

Owners of non-primary UK property have just over a year to prepare for a dramatic change in their tax position. A� In his 2013 autumn statement, UK Chancellor of the Exchequer George Osborne announced an extension of Capital Gains Tax to apply to all future gains made by non-resident owners when they sell a residential property. A� The general consensus amongst the economic analysts is that CGT will only take into consideration gains made from Aril 2015 onwards. If this is the case I dona��t think there will be any big sell-off, because it doesna��t matter how much youa��ve made up to that point. The London market in particular has already witnessed huge gains with typical London house prices now 8 per cent higher than they were in the peak of 2007. Tax is not necessarily a primary driver for many international buyers. Many of the current crop of international buyers are buying up London because they want a piece of this city. A� But investor be aware, at this stage please take note that this CGT proposal is still very much up in the air, no draft legislation has been published yet. There is still a strong possibility that foreign investors will have to pay full CGT from the purchase price prior to 6 April 2015. If this is the case we will see a far greater response to investors selling off their properties to avoid any capital gains, particularly with the high level of gains achieved in recent years A� Active from April 2015, the tax will apply to any profits from the sale of a property that is not the ownera��s main home.A� At the moment, UK basic rate tax payers pay 18 per cent of their gains on such properties, while higher rate tax payers are charged 28 per cent. A� A number of economic analysts believe the move was intended to cool an over-heating London property market, where values have kept rising by double digit figures and an estimated 70 per cent of new housing is bought by overseas investors, along with 30 per cent of London homes worth more than A?1 million. A� Some argue that the move could dissuade overseas investors from coming to the UK, Capital Gains Tax will factor into purchasing decisions and there will be some people who will inevitably look elsewhere, to other countries where they could achieve higher yields with no CGT to be paid on the sale of their property. It is also likely to reduce the number of investors speculating on price growth and flipping residential property here in the UK. A� Other property professionals are more critical of such a move. A�Some feel this will send out a negative message to international investors, after all London is a global city and should be seen as safe haven.A� We need to encourage foreign investment and expenditure in all areas.A� The recovery in the housing market across the UK is still fragile in many areas and it is essential that the government continues to encourage it. A� Before the surge of international investors purchasing residential buy-to-let, this market was predominantly driven by the domestic investor who were liable to pay CGT anyway. So you could argue that the government is simply adjusting to these recent changes and wanted to level the playing field. Broader international interest in London is here to stay, ita��s the countries might change over time. Up to recent years it was the Irish who were a very prominent nation who invested heavily in prime central London. Currently ita��s the cash rich Middle Eastern, Asian and Russian markets that are taking the pole position of current crop of investors into London. A�Now there are early signs of Brazil and African nations wanting their piece of the capital city. A� There should be few worries about double taxation applying to overseas investors, because most relevant countries have taxation treaties with the UK to remove any unfair tax penalties. This is certainly the case in Ireland, where many investors have acquired properties in the UK in recent years.A� A� In Mr Osborne Autumn statement, he also announced a change in CGT relief, which will raise more tax from buy-to-let landlords, who rent out a property they had previously lived in. Currently owner-occupiers can claim private residence relief on a property they previously lived in, but now renting if they sell up within 36 months. This incentive period will be reduced to 18 months from April 2014, this is aimed to reduce the incentive for those accidental landlords to exploit the rules.   If you wish to keep informed as to what legislation has been passed later in the year, please email me or visit my website and leave your details.   David Johnson is a director of independent London property consultants DJohnson Property & Associates. You can contact him at 0044-207-3731079.    

Sunday Business Post – December 15th, 2013


Surviving the London property minefield.

The British capital’s market is enjoying aA�noticeableA�upswing at the moment, but beforeA�making any moves, be sure to choose the right agent.

London house prices have jumped to their highest in three years, with some boroughs enjoying double the value they had a decade ago. In well-heeled, sought-after areas such as Kensington and Mayfair, average sale prices have risen by 18 per cent to A?3.2 million, according to Savills estate agency. Typical London house prices are now 8 per cent higher than they were in the peak of 2007 and, in the central London area of Westminster, prices have skyrocketed by 114 per cent, according to nationwide figures. Bolstering the prosperous London market are the weakness of the pound and the performance of global equity markets, which is reflecting well against the flailing euro. Low interest rates and a Help-to-Buy scheme subsidised by taxpayers are also contributing factors. To make the most of this positive upswing in the London property market, property owners thinking of selling should act now. And for those sitting on the fence, the introduction of a capital gains tax on home sales by non-residents from April 2015, might offer a further incentive to make a sale. The city has always been alluring to property owners from around the world. As the financial capital of Europe, and a safe haven for investment amid the economic instability felt around the world, Britain’s capital presents some wonderful opportunities, but buyers and sellers must tread carefully. When selling a property here, a vendor must navigate the thousands of unregulated estate agents in a bid to get an unbiased valuation and fair commission – a daunting task for even the most established Londoner, let alone a time-poor or overseas owner. The number of individual estate agents employed in Britain is at an all-time high, with 562,000 currently working in ”real estate activities”, up by almost 10 per cent between March and June this year, according to the Office for National Statistics. Several hundred agencies compete for the London market. Now the fastest growing sector of the British economy, it indicates that the British property market is appreciating fast and now is a great time to sell. It also means that, for the vendor, there are an overwhelmingly high number of agents to choose from. To compound the issue, there is no regulation policy or licensing scheme that estate agents must comply with in England. Anyone could work as an agent or set up an agency without qualification or experience – a situation which has led to an explosion of agencies and thousands of lone agents operating in London. It can be an extremely daunting experience for someone looking to sell their property and, without regulation, there is no protection for vendors. Choosing the right agent is crucial to get the best return on a property, and can mean a difference of thousands of pounds. The proliferation of unregulated agents makes the choice particularly complicated, because there is no national standard which agents must comply with, or which consumers can refer to, when making this decision. Using a property consultancy service – which is independent of all estate agents – can remove this risk, by providing impartial advice and valuations, and helping sellers choose an appropriate agent. Companies such as DJP oversee each sale from start to finish, which allows the seller to make the transaction with confidence. The service is also free for the seller, as the consultant retains his or her fee from the estate agent. A property consultant can be particularly useful for international property owners looking to sell in London, because they negotiate on the seller’s behalf. Consultants work to ensure that the property sale reaches its full potential. This includes ensuring the agent secures the best exposure of the property in newspapers, magazines and property portals, as well as getting regular feedback on viewings, and managing the conveyancing and exchange of the property. The aim is to make the whole experience as smooth and efficient as possible, saving clients time and energy and offering the best service possible. David Johnson is a director of independent London property consultants DJohnson Property & Associates. You can contact him at 0044-207-3731079.