Time and time again politicians seem to think that the London property market is easy pickings for additional tax income. Just prior to the last general election we saw a raft of politicians suggesting an increase in the mansion tax, predominantly targeting London property, although this did fall by the wayside when the Conservative government managed to secure a majority in the House of Commons.
However, George Osborne, the Chancellor of the Exchequer, has recently been waxing lyrical about his forthcoming budget changes which will see inheritance tax levied on those owning property through offshore companies.
More changes expected to non-domicile status
The inheritance tax (IHT) changes are part of a wider plan to restrict the tax privileges of so-called “non-doms”. These individuals are allowed to maintain their foreign domicile while using an array of tax efficient methods to shelter their UK wealth. One of the more popular methods seems to be acquiring property in offshore companies as a means of avoiding inheritance tax.
The infamous non-domicile status has been something of a political hot potato over the last few years and indeed many individuals with this particular status are very active in the London property market. Some experts believe that there will be a slowdown in the London real estate market after the changes are introduced from 2017. However, others believe that the London market will, as it always has, learn to cope and adapt to the changes.
Does this reduce tax incentives for investing in London?
While some property expert will suggest that the proposed changes in the non-domicile status will reduce the attractions of the London real estate market, others will quite rightly highlight the fact it brings the UK into line with the likes of the US. Even though there is no doubt that London has something of a safe haven/tax haven status amongst the world’s more wealthy investors, there are many other attractions for investors.
The reality is that the London real estate market performs very differently to the wider UK property market. It is also worth noting that ongoing turmoil within Europe, and the fact that the UK did not adopt the Euro, creates yet another attraction for those looking to acquire London property. When you also take into account the fact that the UK economy has performed admirably since the 2008 worldwide downturn perhaps the simple tax efficiencies of the UK/London property market are overdone?
Reducing your inheritance tax bill
While many wealthy investors have cold hard cash available to acquire properties they may now look to take out long-term mortgages which will reduce future inheritance tax liabilities. Even though many local and foreign investors in the London property market have made full use of the historic tax breaks, the forthcoming changes will likely see financial advisers finding new ways to reduce potential tax liabilities.
It seems that whatever the politicians throw at the London real estate market is shrugged off and life goes on. While the change in inheritance tax for properties held via offshore companies has been criticised by many, it is worth noting that over £120 billion worth of property in England and Wales is currently held in this manner. So, the UK government could be set to cash in some very expensive inheritance tax chips in years to come?