Chancellor George Osborne's plans to tax foreign property owners on their profits in a bid to deflate the London and South East bubble could backfire, the property industry has warned.
Press reports suggest the Chancellor could charge capital gains tax on non-resident property sellers in December's autumn statement.
This would bring the UK into line with many European countries, while UK residents already pay CGT at between 18% and 28%, on the proceeds of second homes sales.
Wealthy foreign buyers have been blamed for driving prices beyond the pockets of local people, but the British Property Federation (BPF) said the mooted new tax will make matters worse.
It said a crackdown on foreign property investors would hit UK growth rather than house prices, and damage the UK’s status as a country that is ‘open for business’ while doing little to curb rising house prices.
The BPF said that the central reason behind the high cost of homes was lack of supply, not foreign buyers, and warned that penalising people who want to invest in the UK would see fewer homes built, not more.
It added that the political risk created by the proposal would create uncertainty among people considering investing in a range of assets, including commercial property, and not just in the residential sector.
Liz Peace, chief executive of the British Property Federation, said: “House prices are rising due to a chronic shortage of new homes, not because of foreign investors, and until this supply issue is dealt with it makes no sense to slap kneejerk taxes on people who want to spend money in the UK and contribute to the UK economy.
“Uncertainty of this kind is hugely damaging to Britain’s image as a country that is ‘open for business’, and far outweighs the paltry sums which this tax would raise – indeed it is only with foreign investment that many London schemes are able to go ahead.
“We know from bitter experience that some foreign investors will have seen these headlines and will already be thinking twice about whether to invest in the UK.”
The BPF cites a study published this month by the London School of Economics that found while international investors have backed a large proportion of development in London, foreign buyers accounted for just 6.5% of sales by value across the capital as a whole.
These homes are also predominately high-value homes, meaning the number sold to overseas investors would be even less.
And it said research from Knight Frank suggests that over the last two years 49% of all £1 million-plus sales in prime central London went to foreign buyers by nationality, but only 28% of buyers were non-resident in the UK.
Comments