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It's Payback Time: Foreign UK Homebuyers To Be Subject To Capital Gains Tax

Tyler Durden's picture





 

Back in September 2012 when we, correctly, suggested that one of the main drivers of demand (and increasingly becoming the only one) for US housing, especially in the mid and high-end, was foreigners - particularly of the oligarch persuasion - who come to the US to park their embezzled and otherwise ill-gotten funds, courtesy of the NAR's anti-money laundering exemptions, which means that they can buy any house, sight unseen, cash upfront (recall that a record 60% of all home purchases are all cash, which explains why mortgage bankers are being fired by the thousands left and right), no questions asked. One thing we made very clear, though, is that since one never actually buys the real estate, but merely rents it from Uncle Sam (or any other Development Market host nation), there is little preventing the host from cranking up the tax system, or outright changing it, when the need to raise funds strikes. After all what rights do criminal foreigners with multi-million homes in New York (or San Fran, or London, or any other major metropolis that is the target of offshore capital) actually have.

Which is why, over a year after this prediction, we find that if not the US (yet) then certainly London, where the housing bubble is greater than anything seen in the US thanks to Russian and Asian hot money, is doing just this.

Earlier today, the London Assembly passed a motion welcoming a possible move by the government to bring in capital-gains tax on foreign investors selling a home in the city.  The motion was passed today with 13 votes in favor and 6 against, according to an e-mailed statement by the 25-member assembly, whose main function is to hold the capital’s mayor to account.

The populist angle was naturally present to justify this decision: "Londoners’ right to own a decent home must be put before speculative investors in London’s property market,” assembly member Tom Copley from the Labour Party, in opposition nationally, said in the statement. “London property is becoming a global reserve currency for people to keep their money and to make money out of London property.”

That actually is a spot on and very accurate assessment, especially in a world in which the governments of these same nations (recall that the US Mint is the first to propose a gold-backed Bitcoin token) for clear reasons, turn a blind eye to various forms of below the radar money transfers, many involving Bitcoin. After all, what better way to "honeypot" and trap foreign capital than by making inbound cash transfers easy, and then once the real estate "reserve currency" has been acquired, to change taxes and force foreigners to pay up for the privilege of having been allowed to park their illegal capital there in the first place.

As Bloomberg reports, the full passage of this tax proposal is likely only a matter of time now:

Sky News television reported a month ago that the government is considering extending capital-gains tax to foreign investors. Treasury minister Sajid Javid indicated last month an announcement was likely when Chancellor of the Exchequer George Osborne makes his Autumn Statement to Parliament tomorrow.

Frankly, the only question we have is why it took London so long, although "building up a critical mass" of future capital gains taxpayers is probably the answer.

And soon, after this has been tested in the UK, where will it go... but to the US.

We would not be surprised if the ultra-luxury segment in US housing suddenly becomes just a tad wobbly as foreigners seek to quietly but promptly sell now and avoid capital gains, before, like in London, this becomes the law in the US next. Who knows: lesser things have popped housing bubbles in the past.

 


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Wed, 12/04/2013 - 19:41 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Taxing fer-ners is always fun.   Not a much fun as bombing them, but fun.

Wed, 12/04/2013 - 20:02 | Link to Comment philipat
philipat's picture

Foreigners and out-of-town vistors (None of whom vote locally) have been a soft target in the US major cities for years. Hotel rooms in NY are subject to SIX different taxes which both push up the cost of a room and result in an extra tree getting cut down to print out an itemised statement of account. So, yes, the only wonder here is why capital gains tax for foreign property sales has taken so long.

Wed, 12/04/2013 - 20:11 | Link to Comment Pure Evil
Pure Evil's picture

Its only fun to bomb the fer-en-ers if they're of the brown skin persuasion.

You might not want to mess with Ivan since he's known for his plutonium and polonium.

Wed, 12/04/2013 - 21:19 | Link to Comment Teddy Tenpole
Teddy Tenpole's picture

 

 

 

hey, it's one of the wonderdouche twins with another brilliant post

 

ya, don't mess with Ivan

 

 

luv yer werk

 

 

Thu, 12/05/2013 - 01:15 | Link to Comment Harlequin001
Harlequin001's picture

Fuck me. I never saw this coming...

Wed, 12/04/2013 - 19:42 | Link to Comment falak pema
falak pema's picture

bail-ins à la ANglo saxon...every man has his way for fishing; just the rod changes.

Mr Hollande must be laffing right now. "They copy meeee"

Wed, 12/04/2013 - 19:47 | Link to Comment seek
seek's picture

Oh, this happens in the US as well. In my state they re-wrote the real estate tax laws to put unoccupied (e.g. second homes) and rented homes in a different tax class than owner-occupied homes. Once this was done, smaller vacation communities (which have a high percentage of second homes) taxed the shit out of that classification while cutting the owner-occupied class a break; they were able to do this because the second home owners couldn't vote in local elections that passed the tax increases.

Never underestimate how quickly your government and neighbors will fuck you over if there's something in it for them.

Wed, 12/04/2013 - 19:51 | Link to Comment RSloane
RSloane's picture

In other words, taxation without representation. You are so right, Seek.

Wed, 12/04/2013 - 19:58 | Link to Comment fonzannoon
fonzannoon's picture

my best friend is a real estate attorney. He did a short sale today. The bank that was selling the house gave the homeowner (who had long since stopped paying the mortgage) thousands of dollars to relocate. 

The free shit army is alive and well. 

Also, on a hilarious side note....I had an appointment today with a client. I went over a proposal for some assets she has elsewhere. About halfway through it she started laughing. I stop and she says "listen do whatever you want with my money....the stock market is a fuckin joke. This whole economy is a joke, so go ahead and just do whatever...who gives a shit!"

 

Wed, 12/04/2013 - 20:10 | Link to Comment negative rates
negative rates's picture

She didn't know she had the money, the hilarious part was that you told her, ergo the do whatever shit.

Wed, 12/04/2013 - 20:13 | Link to Comment fonzannoon
fonzannoon's picture

press hard, 4 copies.

Wed, 12/04/2013 - 20:00 | Link to Comment Xibalba
Xibalba's picture

Sounds like you're living in Montclair, NJ.  

Wed, 12/04/2013 - 20:09 | Link to Comment seek
seek's picture

AZ, actually. I found out about if from a realtor in one of the vacation communities when I was looking to relocate -- they use it as a selling point to people planning on buying a primary residence. I found it pretty disgusting.

Wed, 12/04/2013 - 21:19 | Link to Comment BigJim
BigJim's picture

 Never underestimate how quickly your government and neighbors will fuck you over if there's something in it for them.

I think you've just summed up democracy's main appeal in one sentence.

Wed, 12/04/2013 - 19:48 | Link to Comment The Alarmist
The Alarmist's picture

Expropriated here, expropriated there ... what's the difference?  Consider it a flight-to-safety tax, slave!

Wed, 12/04/2013 - 19:50 | Link to Comment Major Miner
Major Miner's picture

"Earlier today, the London Assembly passed a motion welcoming a possible move by the government to bring in capital-gains tax on foreign investors selling a home in the city."

You mean to tell me that up to this point, foreigners selling a home in London WEREN'T subject to any capital gains tax?  They used to let foreigners sell at a gain and leave unscathed?  I'm glad they're closing the loophole now, but ferchrissakes, it's a bit late, isn't it?

Wed, 12/04/2013 - 20:08 | Link to Comment smacker
smacker's picture

It stems from the very old tradition that a person's "prime" residence is not subject to CGT when sold.

Any person who owns more than one property is allowed to nominate one of them as his prime residence for tax purposes. He can change it at any time.

Wed, 12/04/2013 - 20:13 | Link to Comment negative rates
negative rates's picture

Well at least the last home you claimed to lived in the past 6 months.

Wed, 12/04/2013 - 20:30 | Link to Comment smacker
smacker's picture

Well, yes, sort of. But there can be a lot of leeway...

Recall the scandal with Members of Parliament who owned a home in their parliamentary constituency and a second home nearer to Westminster where they lived most of the time and was their "main" residence.

When they wanted to sell their constituency home, they promptly nominated it as their main residence to avoid CGT when sold. Hey presto. After selling it, they switched their Westminster home back to being their main residence. Dozens of them took advantage of this loophole in the law over the years.

Wed, 12/04/2013 - 20:55 | Link to Comment YHC-FTSE
YHC-FTSE's picture

Still seething about those bastards at the trough flipping houses and claiming fucking expenses for decorating the houses they flipped. I will never forget the outraged looks on some of their faces as they were told that their actions were unethical - the fuckers had no shame. Arrgh! Got to watch the blood pressure. 

Wed, 12/04/2013 - 21:11 | Link to Comment garypaul
garypaul's picture

Fuck the ethical. If it's not illegal then people will do it, period. I can't stand moralizers.

Wed, 12/04/2013 - 21:24 | Link to Comment YHC-FTSE
YHC-FTSE's picture

Good for you. You'd make a fine member of parliament.  

Thu, 12/05/2013 - 06:02 | Link to Comment smacker
smacker's picture

Yeahbut...it's slightly more complicated. Running costs of MPs second homes are largely refunded by taxpayers through the expenses racket. Thus we see them claiming Council Tax, energy costs, maintenance and cleaning costs on expenses.

And despite "austerity", we see few reductions in allowable expenses MPs can claim. Why? Because MPs are the body who decide on such matters under control of The Speaker. A moral hazard par excellence. Even though they now have yet another oversight committee, its role appears to be in managing "public perception" of the racket, not to make meaningful cutbacks.

Wed, 12/04/2013 - 19:52 | Link to Comment The Alarmist
The Alarmist's picture

BTW, US already has it in the form of 30% withholding on sale proceeds ... if you want your money, you have to file a return and thus fall into the system, and most of the so-called Double-Tax treaties reserve taxation of US RE to the US, so foreigners will not escape without having paid their "fair share." 

Wed, 12/04/2013 - 20:01 | Link to Comment Xibalba
Xibalba's picture

Waitresses, waiters, or anyone living off of pre-taxed 'tip' moneys are also double taxed.  That shit 'trickles down'. 

Wed, 12/04/2013 - 19:55 | Link to Comment dojufitz
dojufitz's picture

Come to Australia...

the land of the soft touch.....

where due to O/S buyers no one born here can afford a simple place near any city......

and real estate speculators get a tax break for buying mutiple homes.....

 

Australia....the land of the RIP OFF.

Wed, 12/04/2013 - 20:00 | Link to Comment The_Prisoner
The_Prisoner's picture

What is happening in Australia is sad. One of the last countries on earth with a healthy middle class is being hollowed out by intitutionalisation of moral hazard. Turning everyone into property speculators.

And now the debt ceiling has been abolished. We're rich, bitch!

 

Wed, 12/04/2013 - 20:37 | Link to Comment The Alarmist
The Alarmist's picture

Rubbish!  You should be glad foreigners are propping up the "value" of your property.  Actually living near the city in which you work is highly over-rated anyway.

Wed, 12/04/2013 - 21:23 | Link to Comment BigJim
BigJim's picture

Yeah, it's great... if you actually own a house.

If you're a first-time buyer, it's not so great, is it?

Wed, 12/04/2013 - 21:27 | Link to Comment FredFlintstone
FredFlintstone's picture

Propping? OZ and NZ homes would be unaffordable to most in the good ole USA. People don't really save money over there.

Wed, 12/04/2013 - 21:25 | Link to Comment Teddy Tenpole
Teddy Tenpole's picture

 

 

 

bummer dude, rural Australia looks rather scary:

http://youtu.be/wNzfgl_H5vA

 

 

 

Wed, 12/04/2013 - 20:00 | Link to Comment Central Bankster
Central Bankster's picture

No way foreigners stop buying US property because one other Western country started taxing real estate.  Sure it may happen, sure it may make others more cautious.  But more likely then anything, no one will even notice.

Wed, 12/04/2013 - 20:02 | Link to Comment Winston Churchill
Winston Churchill's picture

Looks like all govts are now living by the maxim of

'tax it until you're ready to steal it all'.

Buried or sunk gold looks better every day.

Wed, 12/04/2013 - 20:07 | Link to Comment smacker
smacker's picture

This proposed new CGT policy has raised a lot of angry questions as to whether Brits who live abroad - mostly retired folks living in Spain/France etc - and buy or retain a home back in Britland will also be caught up in it. No answer yet...

Wed, 12/04/2013 - 20:13 | Link to Comment Withdrawn Sanction
Withdrawn Sanction's picture

Governments everywhere (but esp in US, UK, and southern Europe) are desperate for cash.  At root, that's why Obamacare was upheld as a tax.  It's got nothing to do w/health care.  It's about a resource grab by desperadoes.  Same w/the changing real estate rules, same w/soon-to-be depositor bail-ins and 401-K seizures.  It's also the same reason NSA is spying:  it aint to fight terrorism, but to know where the money is and where it's going so it can be looted.

The tab for years of debt-financed spending is coming due and the spenders realize they don't have enough to cover it...yet.  To that end, acc to the Treasury's EOY report for FY2013, US government receipts rose 13% overall, lead by individual income taxes, up 16% (and, hint hint, it wasn't b/c incomes rose 16%).  Spending on entitlements rose 6%, but interest on the US debt rose a sharp 16%.  Defense spending fell 6%, and thanks to the sequester non-defense discretionary spending was down 30% (but accounted for a comparatively tiny $500B in spending, down from $700B in 2012).

Net net, the deficit actually fell below a trillion dollars for the first time in several years.  That condition will not last, which will then make desperate politicians positively dangerous.  Take appropriate precautions.

Wed, 12/04/2013 - 20:32 | Link to Comment starman
starman's picture

Z illegal alien that bought my pad over 30% of market value all cash bought another 15mill worth of SoCal shacks. ..... In 6 months!

Wed, 12/04/2013 - 20:38 | Link to Comment The Alarmist
The Alarmist's picture

Doom on you for tossing around such racist hate speech ... that would be an undocumented resident with inalenable rights to you, sir.

Wed, 12/04/2013 - 20:41 | Link to Comment starman
starman's picture

You're right Alarm, pardon my French

Wed, 12/04/2013 - 21:13 | Link to Comment Constitutional ...
Constitutional Republic's picture

Broke Britain, the Queen's own cesspit, proposes anything that will rob the many for the profit of the few.

The nondom 30K tax per year proposed by New Liebor Rothschilds pets was a warning.

Wed, 12/04/2013 - 21:19 | Link to Comment YHC-FTSE
YHC-FTSE's picture

So...They raised our property values, contributed to our economy, used none of our resources,  and now they are getting taxed when they sell their property back to us (perhaps at a loss). But we hate them, insult them, and question how they made their money because. ..they're foreign?  I think that's going to be narrative of every government introducing new taxes and haircuts on savings.  It worked in Cyprus (remember the haircuts on savings to punish the Russian oligarchs? ), and now it will be everywhere. Just too bad if you're caught up in the Kristalnacht of hate and you get taxed along with them.

Wed, 12/04/2013 - 21:25 | Link to Comment BigJim
BigJim's picture

If you're such a nice person what are you doing having any money in the first place?

Wed, 12/04/2013 - 21:30 | Link to Comment MoneyThimbles
MoneyThimbles's picture

Oh you credulous Yankees!

The "London Assembly" is a totally unimportant little watchdog body set up to examine what the Mayor of London does and, as such, is probably chock-full of leftist apparatchiks. Please DO NOT confuse it with Parliament, which is the supreme law-making body in the country.

The original Bloomberg article started off "The London Assembly passed a motion welcoming a possible move by the government"... "Welcoming?" "Possible?" Those are clues gentlemen!

 

Wed, 12/04/2013 - 22:44 | Link to Comment Peter Pan
Peter Pan's picture

No wonder Boris said he loves bankers. Now he loves foreigners buying houses as well.

But London property becoming global reserve currency?

I say BS. Let's see how easily they can sell their prperties from here on and how many willing buyers there are.

There is only one global reserve currency. It's yellow. It keeps silent. It can hide. It can change address. It can be sold in small pieces. And it's not cheese.

Wed, 12/04/2013 - 23:05 | Link to Comment ZH11
ZH11's picture

As Marx quoted in Vol III of Capital "Palmerston's cynical response to this was : ' The House of Commons is a house of landed proproetors'". This was taken from 1862-83 and nothing has changed much since in the UK. 

We now have non-doms sitting in the House of Lords, therefore, to say that a change in the law as noted above has a chance of becoming law in the UK is just a fantasy so long as the conservatives, labour or the Lib Dems hold parliament.

Thus the Assembly can vote all they like because they don't have the power to make the necessary law to enforce it. That can only come from the House of Commons who will never let that idea get past an EDM.

The US and the UK government are prostrate at the feet of international capital. They attempt to talk tough to preserve the view in the public's eyes that they're in charge, especially close to an upcoming election, but in their private meetings they're back on the floor doing whatever they're asked to curry favour for their post-parliamentry careers.

 

 

Wed, 12/04/2013 - 23:35 | Link to Comment Jack Burton
Jack Burton's picture

Obviously the world central bank money printing orgy is causing those who benefit from the printing to have huge excess cash reserves. It stands to reason that all across the worl the 1% would use their central bank bernanke bucks to buy real estate. The Estate agents are having a ball selling to these cash rich 1% 'ers. The fact that house prices get jacked up in prime cities like London, Paris, Stockholm, Sydney, Moscow, New York and others, makes sense. I have been to all those prime cities, and if I had my cut of all the money printing I would be the first to buy in London then Stockholm. From what I have experienced in these cities you would be a fucking fool not to invest in them. They offer a great life for anyone with money.

Thu, 12/05/2013 - 00:21 | Link to Comment user2011
user2011's picture

Perfect execution...  you know they are trying to hide their asset outside of their countries.    They lure them in, showing them your welcoming arms.   Take them in, butter them up...    Praise them for spending big.    Once they and their family and friends had they shopping spree...   Time to pass the law and cut their throat.     Just like bitcoin... 

Thu, 12/05/2013 - 00:33 | Link to Comment Never One Roach
Never One Roach's picture

Wait until the Property Surtax is placed on RE owned by non-USA citizens. Gotta fund those public pensions somehow so why not tax the foreigners?

Thu, 12/05/2013 - 03:25 | Link to Comment Global Observer
Global Observer's picture

The proposal taxes foreigners at the same rate as locals. Not sure why that should be decried. Perhaps there was a time when the country intended to encourage foreigners investing in their property markets and incentivised it by giving tax breaks to foreign investors. Removing incentives is not penalising. Of course, it would only be fair to give the foreign investors a time window within which their current invetments in the property market can be divested without a capital gains tax. Any foreign investments made after the passage of the law or divestments made after the expiry of the time window alone should be subject to the capital gains tax.

Thu, 12/05/2013 - 07:51 | Link to Comment smacker
smacker's picture

CGT is not charged on a UK resident's nominated "main" home, only on 2nd/3rd homes etc.

Any non-resident owner cannot nominate a UK property as his main home for obvious reasons and therefore it will be treated as a second home and subject to CGT.

CGT will only be charged on the capital gain from the date the rule is introduced up to the date of sale. The Inland Revenue will probably use the published House Price Index for calculating liability. For governent to attempt to charge CGT retrospectively, going back to the date of original purchase, would invite legal challenges.

Thu, 12/05/2013 - 07:57 | Link to Comment Jimbodude
Jimbodude's picture

Bang on the currency Tylers. George Osborne has just announced CGT will apply to foreign owners for sales after April 2015. What price the bedsit above the fish and chip shop in Brixton now? Probably not 300,000 GBP.

Thu, 12/05/2013 - 08:03 | Link to Comment smacker
smacker's picture

 

It will be very interesting to examine whether this new CGT is only applied to properties owned by foreign persons or whether it will also apply to very many which are owned by foreign corporate entities registered in other jurisdictions. In these cases, it is the corporate entity that is bought & sold, not the property itself. And there is never any need to inform the UK Inland Revenue about it at all.

I can say with 99% certainty that Osborne will not explain this loophole as it is will be the loophole for foreign VIPs to use.

Thu, 12/05/2013 - 08:40 | Link to Comment Jimbodude
Jimbodude's picture

Funny how if taxes go up on cigarettes or beer, they go up with immediate effect but a tax on foreign owner house sales is announced fifteen months in advance. That is the loophole. Sell now and get your profit tax free or sell in 2015 and take a big hit.

Thu, 12/05/2013 - 10:00 | Link to Comment d edwards
d edwards's picture

I believe that somewhere in the clusterfuck that is the 0bamacare law there already IS a cap gains tax on real estate-something like 3.8%.

 

The US beat them.

Thu, 12/05/2013 - 12:09 | Link to Comment ZH11
ZH11's picture

Bang on.

It sounds good, almost egalitarian to the voters right on top of an election cycle but in truth it's another ruse which once detailed wil show more available dodges to make it a worthless gesture.

Beyond that this policy is well over a year away which means there's plenty of time for the transfer of assets etc in order to fully ensure no tax is paid upon the disposal.

Thu, 12/05/2013 - 12:27 | Link to Comment smacker
smacker's picture

Quite so. The idea that the Ruler of Dubai who owns at least three multi-£million properties in the UK would pay CGT when he sold one of them is plain barmy.

It gets even better...because so many of these foreign-owned properties are registered in the name of a foreign corporate entity, they don't even pay Stamp Duty when they're bought/sold. Because according to English law, no change of ownership has taken place.

As you say, it's a ruse to fool the punters.

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