Last month’s HMRC announcement that it has altered its position on taxation of using foreign capital as collateral for borrowings could have a significant impact on the London residential market, according to Cluttons’ Head of Residential Development Julian Briant.
The new rules mean that using foreign capital to obtain a loan in the UK will now result in a taxable remittance, making mortgages less attractive for investors hoping to use money held abroad as security. Funds used in this way will now contribute to an individual's overall UK income and be taxed in the same way.
Briant says that this could have a major bearing on foreign buyers wishing to invest in London property as the majority tend to hold funds in off-shore accounts. He says it's not just international buyers who will be affected; some UK investors keep money overseas due to more attractive interest rates.
The warning comes at a time when the capital’s market slowdown has been well documented.
“Time will tell whether the legislation will influence overall demand for London property, which remains a primary go-to asset for international buyers,” Briant says.
In his warning, Cluttons’ Head of Residential Research went on to say that London’s position as a highly attractive place to live is secure, although some foreign purchasers may be caught off-guard by the government’s decision – which has largely gone under the radar.
“I would encourage a review in six months' time to understand the effect of this unexpected change in tax law, perhaps followed by a consultation with the property industry to ensure that we are all aligned in our goals and expectations,” Briant concluded.
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