Chancellor Rishi Sunak confirmed on Budget Day that a two per cent surcharge will be added to the tax burden for foreigners buying a home in Britain.
For investment or second home properties worth more than £1.5 million that takes the top rate up to a record 17 per cent from April 1.
It is the first time that a property tax in Britain has singled out overseas buyers and is one of the highest marginal rates on property transactions in the world.
The extra tax rate was first mooted as long ago at the 2018 Budget in response to concerns that wealthy “buy to leave” foreigners were snapping huge swathes of the capital’s most desirable areas leading to deserted “lights out London” neighbourhoods.
Tom Moran, a partner at law firm Charles Russell Speechlys said the additional burden could make the difference between a wealthy investor buying in London or deciding on New York or Paris instead.
He said: “Unfortunately the Chancellor did not defer this change, which penalises overseas buyers with extra tax. For the first time, UK and non-UK buyers are treated differently.
Although it is not a popular view, we should be mindful of making the UK property market less attractive to foreign money, not just in terms of the primary investment in the asset class, but also the secondary spending on construction, renovation, interior design, services and “lifestyle spending”.
Chris Dietz, executive vice president at property network Leading Real Estate Companies of the World said:”The upcoming two per cent levy on international purchasers is a real issue for developers and the wider property industry.
“Overseas investment into the UK market is key, particularly with off-plan sales fuelling delivery of homes throughout the country. The Budget was a missed opportunity to scrap the tax and reignite international interest in London as a global hub, sending a positive global message as we look forward to an uncertain post-Brexit landscape.”
The “foreigner tax” will add hundreds of thousands to the tax bill for snapping up London’s biggest mansions. The bill for a £10 million home will rise by £215,000 from £1,398,750, a rate of 14 per cent, to £1,613,750, or 16.1 per cent once the stamp duty holiday expires at the end of June.
Around half of all purchases above £10 million in London are made by non-resident foreigners.
They include the £200 million sale of a vast mansion in Knightsbridge to Chinese property tycoon Cheung Chung-kiu last year and billionaire US hedge fund manager Ken Griffin’s purchase of a mansion overlooking The Mall for £95 million in 2019.
The new tax rate comes into force after a glut of expensive properties worth £5 million or more changed hands in recent months to meet the March 31 deadline.
According to figures from Savill there were 51 sales at this level in London in January and February, the highest figure for the first two months of any year since 2014,
Frances Clacy, Savills research analyst said: “This could signal that some buyers are trying to transact before the introduction of the two per cent surcharge for overseas buyers expected to come into effect on 1st April, but it also tells us that buyers are now acting on the value in the prime central London market, where prices remain some 21 per cent below peak.
“The distribution of these sales also underscores the continued appeal of the best addresses, with SW1 accounting for 9 of these sales. In leafier W8, which covers Kensington and Holland Park, there were 10 sales, clear evidence of the increased appeal of green spaces – be that private gardens, garden squares or the city’s Royal parks – since the start of the pandemic.”