George Osborne 'considers capital gains tax for overseas buyers'
Sky News says the chancellor may impose CGT, currently only paid by UK citizens, on foreign buyers selling UK property
This is something I have long argued for, suggesting on the way that the mechanism to tackle this issue is to simply require that tax at the CGT rate be withheld by a purchaser if they cannot prove that the vendor is UK resident with it then being for the person suffering withholding to prove their tax position and to claim any refund owing. Nothing will motivate compliance more strongly than a desire to get hold of withheld cash. In other words, this problem can be solved.
But let's also be clear that this is not the only problem needing addressing. The problem of foreign companies owning land in the UK and avoiding tax on gains on it needs to be addressed. This is commonplace. And the problem that foreign companies owning land and renting it in the UK are, quite absurdly, not considered tax resident in the UK and are not required to file accounts or pay corporation tax here (but are subject to the inadequate and ill enforced arrangements on income tax that apply to overseas landlords) should also be tackled.
So, a comprehensive package of reform is needed that:
1) Says all gains on UK property are subject to UK tax with tax withholding always in force until it can be proven that the vendor is UK tax resident and HMRC know of the transaction (so yes, notification must be given);
2) Requires all non-UK resident companies owning land to be deemed resident in the UK and requires them to file accounts and corporation tax returns in this country or risk forfeiture of that property (an effective sanction);
3) Requires that anyone seeking to subvert these rules must be subject to significant penalties, because you can be sure it will happen.
Then we might create a level playing field in UK property taxation. But right now we are a long way from that and the UK is not open for business when it comes to property taxation but is instead open to abuse.
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But would it be allowed within the EU?
“The complete liberalisation of capital movements can have repercussions on the taxation of capital income. The free allocation of capital within the Community and beyond its external borders limits severely Member States’ ability to protect the integrity of their national tax system. Such negative consequences are particularly felt in the field of direct taxation, in particular personal and corporate income tax as well as taxation of interest and dividends”
http://ec.europa.eu/economy_finance/events/2003/workshop/raes.pdf
“So, all the voters get is a “spotlight”. What Mr Cameron cannot do, of course, is admit that he has no strategy whatsoever “to keep corporate taxes coming in”. He cannot admit to the essence of this paper on the Thin Cap Group Litigation, a case which makes it very clear that the EU’s three freedoms — capital, establishment and services — prevent any action on the part of national governments to prevent corporates offshoring their tax liabilities”
http://www.eureferendum.com/blogview.aspx?blogno=84457
Many countries already do this and a typical tax treaty will give the country in which property is physically located the first right to levy tax. Not only hat tax treaties will also give that country the right to tax gains on shares sold in a company that owns property in the country.
I don’t think a withholding mechanism is very workable, because the buyer won’t know what the seller’s base cost is. Notification should be sufficient, and if the vendor fails to comply then HMRC have the ultimate sanction of enforcing over the real estate – there’s no need for them to pursue the vendor in foreign courts. If notification is linked to land registry registration then it would be in practice impossible to avoid.
The idea of making foreign property holding companies UK resident is also I’m afraid a non-starter. First because it’s contrary to all of our tax treaties. Second, because it’s unworkable – if Microsoft Inc own their UK offices would you really make the whole company UK tax resident? And what is it trying to achieve?
Better to propose simple and workable steps than grand schemes that go further than necessary and have zero chance of being implemented.
How very bizarre
Why would HMRC want to forfeit the purchaser’s property in settlement of the vendor’s tax bill?
As for changing our tax treaties – a multilateral mechanism for reform is exactly what the OECD are planning to prevent people like you defending the indefensible
If this goes ahead, tax collection will presumably be by solicitors or conveyancers as happens now with Stamp Duty Land Tax. This makes it a cheap tax to administer for the Government so even more attractive to them. The introduction of Stamp Duty Land Tax in 2003 means that since then the Government has a Domesday Book of land, transactions and owners which will give base values for transactions. Pre-2003 transactions were also tracked (since the 1930’s) by means of a Particulars Delivered (PD) form submitted when Stamp Duty was paid, which would provide details of prices and/or rents. So far, so easy.
If LVT were introduced at a high rate there would never be a capital gain to tax. Bricks and mortar require expenditure to maintain their value. Land is the speculative element.
But no uk tax regime takes that into consideration. You can allow the cost of enhancing your asset against CGT, but not general repairs and maintenance, whether it’s a house or a machine tool.
The gain is the land value – you need to extract all that because it is entirely unearned – true rent seeking.
How about withholding tax on the purchase price (not the gain) when a UK resident buys UK property from a non-resident (not sure if this is exactly what you meant since you mentioned CGT)? Withholding tax on rent paid to a non-resident landlord unless the landlord provides an exemption certificate which is only obtained if you file a tax return in the UK and pay tax on the profits. Tax on gains if a non-resident sells a UK company owning UK real estate (more difficult to enforce but most reputable companies would find it difficult to simply ignore a filing requirement). All of these are done in some other countries. They do not catch everything but are all workable.
That is what I thought I had explained
That the purchaser of a property should be responsible for withholding the tax which might or might not arise on a sale is a laughable suggestion.
You say that the purchaser must verify that the vendor is UK resident? How? Given that residence can be a hugely complicated matter, you’re asking that every property purchaser must now become a tax residence expert?
And if (say) a US citizen sells a UK property to a German resident, you’re suggesting that the UK tax authorities can demand tax from a German that might already be due to the IRS from an American? How are you going to enforce that? Invade the Sudetenland?
This would rapidly become a mater dealt with by lawyers as a matter of course
In which case of course this is entirely possible
Or withholding would happen
It’s really remarkably straightforward
And do recall, this is a tenant’s obligation now
This is an area long overdue to be looked at. From my experience overseas ownership is more widespread than people generally might think.