Thousands of Londoners may suffer rent rises in investment properties let by foreign investors following major tax changes in this week’s Autumn Budget.
New rules outlined by Chancellor Phillip Hammond mean that overseas landlords’ companies will change from being charged income tax on their rental income to corporation tax. Although the headline rate, at 19 per cent, is similar, corporation tax is not subject to the same breaks. Furthermore, corporate taxpayers are entitled to less relief for the interest payments on their debts.
There has been concern from property experts that the tax changes would put foreign investors off purchasing UK properties, due to the fact that not only do they lose tax relief on their debt repayments, they will also face the prospect of paying corporation tax on future profit when selling their properties.
The impact of the changes will be most felt by foreign landlords paying £2 million in interest per year. This indicates property portfolios costing upwards of around £180 million will be worst affected.
Partner at PWC, Aidan Sutton, explained: ‘Most big landlords are highly leveraged, so this could mean a very big bill. This will no doubt influence what they charge their tenants in rent, including thousands of London renters as well as business occupiers.’
Further plans announced in the Budget that offer local authorities the ability to charge up to 100 per cent extra for council tax on unoccupied homes will also be unwelcome to overseas investors.
However, John Collier-Wright, whose firm JR Capital purchases properties in London for Middle Eastern investors, was convinced that the move would not deter buyers, instead merely presenting an unnecessary annoyance. He said: ‘Property taxes here are much lower than most other countries, so an increase from £2000 to £4000 on an average home in central London won’t be a big deal… It’s just annoying.’