Non-dom investors have been hit by a 45% tax if they secure loans against offshore assets to buy a property in Britain.
The stealth tax has slowed down the sale of luxury homes in London’s booming property market, according to estate agents.
The rule affects investors who are not children of a father born in the UK.
This gives them a tax status of ‘non-domiciled’, which means any income remitted from overseas attracts the tax charge.
Chancellor George Osborne changed the rules earlier this year.
Nom doms
Since August, non-doms securing mortgages against overseas assets must pay the 45% tax.
Before August 2014, securing loans to buy UK property against other offshore investments or property was tax-free as the measure was not considered a tax trigger when buying in Britain.
Osborne has introduced a number of new rules to make investing in UK property more expensive for foreign investors and expats.
Homeowners must pay an annual tax on properties owned by companies. This has seen nearly £200 million flow into The Treasury coffers in just 10 months and will recur each year.
Other rules in the pipeline will require companies, expats and non-doms owning homes in the UK to pay capital gains tax when they dispose of the property.
In most cases, UK property disposals are tax-free for non-residents.
Estate agents claim tax issues are altering the London market for homes worth £2 million or more.
In limbo
Many owners and buyers are in limbo over whether to go ahead with transactions because of the high taxes involved. Large numbers of expensive homes have been withdrawn from sale while many owners refinancing to avoid the tax charge.
“The tax measure is undermining buyer confidence in the market and deals are collapsing,” said one agent.
Meanwhile tax advisers are warning that many recent buyers may be unaware of their tax liability.
“Many non-doms who are not up on the measure may face a significant tax bill over the next few months,” said Sue Moore, a technical manager at the Institute of Chartered Accountants in England and Wales.
“We could see some people selling up and leaving the country as the government tries to extract more and more cash from them.”
London is listed as one of the world’s leading markets for prestige property and is considered a safe financial haven for many wealthy investors because of Britain’s stable economy and political status.
