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Why the UK property tax regime is attractive to foreign buyers

cary27 May 2014

Why the UK property tax regime is attractive to foreign buyers

London is proving extremely appealing for wealthy foreign buyers looking to invest their money. This is largely because of the competitive property taxes that mark the UK out as a safe haven for investment. Despite some recent changes made to the tax system targeting overseas purchasers, London stands out when it comes to property hotspots in worldwide cities. This is because most non-domicile residents are not usually taxed on their global income, and the UK boasts a strong legal system and political stability, in a time of potential geopolitical turmoil.

It’s no wonder, therefore, that overseas investors are quick to take advantage of the UK capital’s privileged position when it comes to this. Prime London properties are very popular – with estimates claiming that some 70 percent of newly-built properties are snapped up by international investors looking to make a strong profit. Riverside living is proving to be a big pull for those seeking luxury developments with spectacular views and fantastic amenities, including gyms, saunas, cinemas top-quality concierges and plush surroundings. Many wealthy purchasers from countries such as Russia and China are also attracted to London due to incredibly rich cultural and leisure facilities and the top-notch educational establishments which set the UK apart from the rest of the world.

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Outperforms other cities

The London market also strongly outperforms the rest of the UK and is leagues ahead when it comes to outstanding returns on investments. Since the 2008 crisis, property prices in some UK regions have struggled, while Central London properties boomed. With the current weakness in sterling proving advantageous to overseas buyers, wealthy Europeans have also sought to place their money in the UK capital as a hedge against the problems in the Eurozone. As well as this, many countries in Europe have clamped down on property speculators. France, for example, introduced taxes on foreign owners of second homes in 2012. This meant that Capital Gains Tax on the sale of a second home soared to 34.5 percent, after an extra ‘social charge’ of 15.5 percent was added to the initial tax.

The Spanish government has also brought in wealth taxes on worldwide assets for residents and Spanish assets for non-residents. Italy was quick to impose a wealth tax on property owners in the aftermath of the Eurozone meltdown, with the reintroduction of a wealth tax on the individual’s main residence. Taxes were also extended to overseas properties, including a 0.76 percent yearly tax on purchase cost and a 0.1 percent annual wealth tax on other assets held abroad.

Even Switzerland, a country famous for its liberal banking laws, direct democracy and regular referenda, has introduced some changes to its property market when it comes to the purchasing of homes for investment. The Lex Weber law emerged at the start of 2013, and placed a limit of 20 percent on the number of second homes in any community. Although some national taxation laws are applied across the country, the 26 different cantons have a lot of autonomy on taxation, making it complicated and difficult to decipher. Levies vary according to the canton, with some more favourable than others. There are also restrictions in Switzerland when it comes to foreigners buying property and companies are completely barred. While the lack of stock means that properties maintain their prices, it makes it harder to successfully purchase property in the country if you’re a non-resident.

London is clearly streaks ahead of the competition across the Channel when it comes to favourable property tax regimes, making it an attractive global hotspot for those purchasing homes both based in the UK and overseas.

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