The newspapers are full of the latest idea from the Treasury – to charge foreign residents to capital gains tax on UK properties. This idea pops up occasionally, but it looks a bit more serious this time. It will not bring in any money, but that is no guide.
Since April, we have had a new tax called the annual tax on enveloped dwellings (ATED). This applies to companies owning UK residential properties worth more than £2m. The Treasury wanted to stop people buying houses through companies and avoiding stamp duty land tax. It took them ages to grasp that you do not actually save SDLT by buying a UK property through a company. It is true that if you have a property in a company, you could sell the shares in the company and the purchaser would pay less stamp duty – but nobody ever did that. Nobody in their right mind would buy a company and all its unknown liabilities without a significant discount. More importantly, such properties would invariably be standing at a capital gain and the purchaser would be taking over the inherent capital gain on which they would eventually have to pay tax. This is miles more important than the SDLT liability. When the Treasury eventually understood, they were too far down the road with the ATED charge, so it was introduced anyway.
One of the express policy reasons for the ATED charge was to encourage people to take properties out of companies. This new CGT idea conflicts entirely with that policy. Imposing a charge on foreign residents with UK properties encourages them to hold properties in companies, because a sale of shares in a foreign company by a foreign resident cannot easily be taxed. Once we start trying to tax foreign people on their foreign assets, we will truly have gone mad.
I would expect that a new CGT charge would be rebased to 2014. To impose it retrospectively would be an outrage – even the ATED charge only applies to increases in value from April 2013. Of course rebasing would mean there would be no tax yield – for years.
So if there will be no tax yield – what is this all about? It is difficult to avoid the conclusion that it is simply bashing the rich – and if they are foreign as well, so much the better. It is always more satisfactory to impose taxes on people who do not have a vote. And the voters will like it too, because taxes on other people are always the more popular.
I wish somebody (without an agenda) would explain to George Osborne that this just creates a web of unbelievable complexity which few people can understand. I guess it is only good for tax lawyers – so maybe we should keep quiet.
