Foreign Property Investors ‘Immune’ to Capital Gains Tax Impact (Photo: Reuters)
Foreign Property Investors ‘Immune’ to Capital Gains Tax Impact (Photo: Reuters)

Foreign property investors will be "effectively immune" to the impact of Capital Gains Tax, despite recent house price increases, because they are likely to benefit from currency exchange rates when selling an asset.

According to analysis from Currencies Direct, the bulk of UK foreign property owners hail from Russia, the Far East, and the Middle East and the projected FX rates from those countries against Sterling mean that they are likely to benefit from foreign exchange gains from a property sale.

"Although foreign exchange movements are difficult to predict, currency movements over the past five years provide a telling indicator of those investors who will pay little heed to the taxation hit and those who will more keen than ever to find addresses with the best prospects," says Alistair Cotton, Currencies Direct head of corporate dealing.

"Foreign property investors with assets in the UK will not be overjoyed by the introduction of CGT, however, some will be more nonchalant than others.

"Obviously, the London property market is predicted to continue to outperform over the long term and Sterling is likely to maintain its upward momentum, but the movement of funds from one currency to another paints a more complex picture than those in property sales would like to admit."

During UK Chancellor George Osborne's Autumn Statement, he said that that CGT would be levied on foreign owners at the same rate as for UK residents.

"Britain welcomes investment from overseas but it's not right that those who live here have to pay CGT, but those who are non-residents do not," said Osborne.

"From April 2015, non-UK residents will have to pay CGT on property in Britain, including selling of that property."

People living in Britain pay 18% CGT and 28% if they make a profit when reselling a property that is not classified as their main home.

People who own properties in the UK and are deemed non-residents are currently exempt from CGT.

Cotton says benefit from foreign exchange gains from a property sale will either partly or wholly outweigh the costs of CGT over the five years from 2015 to 2020, if the pound maintains the same relationship it has with their currencies since 2008.

Meanwhile, London has overtaken New York as the number one city for foreign property investors, according to a survey by the Association of Foreign Investors in Real Estate (AFIRE).

Foreign investment in London's property market has driven up house prices in the English capital even as they fell sharply elsewhere in the UK after the financial crisis.

Prime property in London is seen as an asset class in its own right, providing recession-proof returns.

Estate agency Savills said the total foreign direct investment into London's property market was £7bn (€8.4bn, $11.5bn) during 2013 alone.