Property is once again in the political spotlight. Faced with accusations that its Help to Buy policy is inflating another housing bubble, the government will reportedly use next week's Autumn Statement to impose a new tax on the market. According to various press leaks, non-UK residents will in future have to pay capital gains tax when they sell a UK home.
The initiative can be read as a compromise between the Liberal Democrats - who want to shift the burden of taxation from income to wealth and have been pushing for an annual levy on high-value homes (the 'mansion tax') - and the Tories, who don't want to punish 'aspiration'. Both can agree on punishing wealthy foreigners.
One snag is that the tax won't just catch oil-rich Saudis selling homes in Knightsbridge - the demographic for which it is presumably designed. It will also apply to aspirational Brits who have emigrated for work. These will no longer be able to let out their UK home safe in the knowledge that, as overseas residents, they will not lose their capital-gains tax exemption if they need to sell up.
The ruling may also encourage overseas investors to hold their property within Jersey-listed corporate wrappers, says Kersten Muller, a real estate partner at tax adviser Grant Thornton. This goes against the grain of legislation introduced this year to levy an annual tax on homes worth more than £2m and held within so-called offshore "envelopes". He reckons the mooted change will lead to a proliferation of envelopes below the £2m mark.
Meanwhile, the real-estate industry worries that the tax will discourage investment. Brokerage Jones Lang LaSalle says foreigners buying UK homes brings the country £3bn of inward investment each year. Savills points out that previous taxes aimed at top-end London housing - the 7 per cent stamp duty rate introduced in last year's Budget as well as the annual levy on enveloped properties - have already cooled the market. "Year-on-year price growth in the £10m-plus central London submarket is just 1.8 per cent," it reported last month.
