Real estate is a global asset class and the UK competes well for its share of international capital
OUR INSIGHT #3
LEVELLING THE PLAYING FIELD
Why I’m relaxed on taxing commercial property gains for overseas investors
Tax on gains on UK commercial property for overseas investors is once again in the spotlight following Chancellor Philip Hammond’s first Autumn Budget. There has been an outcry in some circles of the property industry after the Chancellor decided to introduce measures that will charge offshore investors tax on gains on UK commercial real estate for the first time in half a century. It has been suggested that the risk of putting off vital investment from overseas is certainly not worth the sum of money (£160m per annum the Chancellor has said) the Treasury expects to recoup.
Whilst there may be good arguments that the overall level of UK property taxes is too high, I’m much more relaxed about how this change will impact the market. First, however, a quick clarification is required:
What we are not discussing here is the high-profile issue of major multinational corporations, apparently not paying enough UK tax through their application of UK tax law and international treaties. There is a myriad of reasons for this, but it is seen as an excuse, a grey area that is being exploited, it is a wholly different issue to that of tax of gains from UK land – in that case the property is clearly in the UK. The resulting gain is in the UK. As such, any tax should be paid here.
Since 1965 the glaring exception to this rule has been the exemption for overseas investors. This is an exceptional policy in Western Europe and what we are seeing here is a simple levelling of the playing field between UK owners that do pay and overseas investors that don’t.
Real estate is a global asset class and the UK competes well for its share of international capital. I don’t believe that global investors, who are often used to paying tax on gains in other jurisdictions and on different types of investment, will be as alarmed by this change. Factors such as the established, quality, transparent, liquid and diverse market of assets and participants and a robust legal system will remain. These are fundamental for international investors.