UK Housing Update.
UK Tax Instigation and further changes.
By Mitch, December 2013
As we all know predicting the actual trigger that bursts the London housing market bubble is nigh on impossible. We certainly have a number of prospective triggers…
1. Sovereign Debt Crisis (rapididly escalating Interest Rates). See here
2. Exhaustion of World GDP expansion is extremely close in this cycle, imminent recession (within 3 to 6 months) ?
3. Massive UK domestic Debt over-leverage. New recorded highs of household Debt recorded this month.
4. Banking crisis and defaults (temporarily delayed due to suspension of accounting standards and 0% Central Bank funding)
4. Inflation spike in energy / oil and food triggering further disposable income shrinkage.
5. Europe peripheral Nation (Spain, Portugal, Italy ?) blows up with Debt Defaults triggering Banking Crisis.
6. Japan – China flare up and War ? see here
7. Middle East civil unrest takes yet another detrimental turn for the worst driving Oil prices higher.
The list literally goes on and on….
But maybe the first domino is as simple as UK taxation on property triggering a flurry of property sales leading into a tsunami of sales attempting to take profits and avoid taxation – who knows ?
The two new taxation policies that have been instigated are as follows…
a… All Foreign property owners will be liable for Capital Gains tax on UK properties levied at 28%. Owners will pay tax on any gains in value on UK properties since their original purchase date. This will come into full affect from April 2015.
b… A further policy announcement on housing shortens the length of time a homeowner has to sell their main residence after they move out to a new property. The original law was they had 3 years to sell before they were liable to Capital gains tax, that has now been lowered to 18 months from April of 2014.
Both of these are significant and should not be ignored…
But personally I think that capital gains tax for foreigners on home ownership could have serious repercussions.
As the BBC writes here…
Foreign property owners will pay tax on any gains in value on UK properties they own, under changes to capital gains tax announced by the chancellor.
Under the current system, only second home owners who are UK residents pay the tax, which is typically levied at 28%, on any rise in value when they sell a property.
BBC goes on to say ….
Wealthy buyers from countries such as Russia and China have been buying properties in London as a base for their visits to the UK. Others from the eurozone have also bought as a hedge against any break up of the single currency area.
Estate agent Savills estimates that as much as 70% of newly built properties in central London are bought by foreign investors.
Jennet Siebrits, the head of residential research at property experts CBRE, said: “The introduction of this tax may provide the wrong signals to overseas investors, and be seen to discourage their investment into UK property.
Thinking this through to its logical conclusion….Foreign owners will obviously sell before the tax comes into play as they are sitting on huge Capital Gains (just in the last 2 to 3 years alone, but especially over the last 10 to 15 years), if they wish to come and re-buy a London property after the April 2015 date (or before for that matter) then they will be re-buying at the new price and hence don’t care about capital gains tax at that point (as their profits have already been taken tax free).
Now looking at disposable income (as a friend recently stated the UK Central Bank is re-collateralizing the London housing by holding rates in extreme negative territory and letting inflation eat away their debt holdings), we have to give the accurate state of affairs as peoples awareness of the situation is just simply not accurate.
Inflating away the Currency by negative real rates is one thing, but if overall income is not rising (worse still if disposable is shrinking due to stagnant income) then the debt mountain actually becomes “more burdensome”.
UK Disposable Income collapsed in Q1 by its fastest rate in 25 years to its lowest level in almost 8 years.
Britons’ disposable income plunged the most in more than a quarter of a century in the first quarter, indicating continued pressure on the economy even as data showed the UK avoided a double-dip recession in 2012.
Real household disposable incomes fell 1.9% percent from the previous three months !!
So we have a record high Debt leverage, overvaluation of the London Housing market never seen before, Interest Rates at 320 year lows, Disposable Income is at best stagnant but more accurately shrinking and now Foreign owners are going to be charged Capital Gains Tax….. Yep sounds like this housing market is going to be doing as well as Gordon Browns famous mantra “we have abolished Boom & Bust” – that ended well !!!
Nice article curtesy of Zerohedge, see here
Best of Luck