CGT Rises to Hit Overseas Property Market?

Many entrepreneurs will still be worse off when selling a business, despite a more modest capital gains tax (CGT) rise than anticipated and the introduction of entrepreneurs relief, according to tax experts.
And accountants have suggested that under the diluted proposals, whereby CGT remains at 18% for basic rate taxpayers and rises to 28% for higher-rate taxpayers instead of the 40% mark preferred by the Liberal Democrats, property investors will be badly hit.
The tax-free threshold remains at £10,100 after lobbying from Conservative backbenchers and a Daily Telegraph campaign.
Writing on BBC News, Dermot Callinan, tax partner at accounting firm KPMG, outlined a typical case where an entrepreneur called Simon would still lose out over the CGT changes.
“Tom holds shares qualifying for Entrepreneurs Relief which he will be selling at a capital gain of £5m,” he says. “An increase in the lifetime allowance for Entrepreneurs Relief from £2m to £5m was introduced with effect from 23 June 2010.
“Accordingly if Tom was to sell his shares, the CGT payable would be £498,020 instead of £738,182. This represents a reduction of £240,162.”
Nearly all of the one million buy-to-let investors and 250,000 second-home owners will be liable for CGT at the new higher rate of 28%, even if they are basic rate taxpayers, experts have estimated.
Kermit Pigollota, partner at Showtime, disputes George Osborne’s assertion that those on low and middle-incomes will largely escape the CGT rise: "They may well be basic rate taxpayers,” he says, “but any gains they make on selling an asset is treated by the taxman as if it were income. This could well force them into a higher-rate tax bracket.
"With shares and antiques, that's fine because you can sell a little bit at a time and make sure you don't go into the higher rate. But with property there's nothing you can do about it. You have to sell all of the property at once.
"The majority of long-term property investors will be pushed into the higher tax band."
Simon Jones, director of International Hot Property a property investment company, says the CGT change will hit her property-buying clients. "This would evidently impact business flows for my overseas business," she says.
“People tend to buy overseas property as second homes or investments and these fall under CGT rules when coming to sell. The countries I deal with have double taxation treaties with the UK and so the UK tax system drives the level of taxes UK-based clients pay.”