Non-resident Real Estate Investors Bullish on Capital Gains Tax Changes

BALTIMORE, Maryland, March 19 -- DLA Piper issued the following news:

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- More than half (58 %) of respondents in DLA Piper study say their UK real estate investment strategy will be unaffected by CGT changes

- 43% of investors will wait until new rules clarified before assessing ownership structure of their holdings

- Despite potential headwinds, London retains #1 attractiveness ranking amongst international cities for real estate investment

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Non-resident real estate investors are holding their nerve on UK investment strategies despite impending capital gains tax (CGT) changes coming into force next month and uncertainty around Brexit. According to a DLA Piper report, more than half (58 percent) of those polled expect that the new tax code, which will align the rules for UK and non-UK residents and see most non-UK residents paying CGT on the sale of UK real estate*, will have no impact on their investment strategy. Yet, over half of respondents (52 percent) expect lasting changes in the way investments will typically be structure in the future.

In a sign of further calm in the market, the survey of 100 senior executives in the real estate sector revealed that 43 percent are happy to wait until the rules are clarified before thinking about the ownership structure of their investments. That said, over a third (38 percent) of overseas investors will look to restructure their existing holdings, with 32 percent predicting that they may consider coming onshore for new investments or explore the use of real estate investment trusts (REITs) (30 percent).

According to the survey the changes to CGT are also expected to impact property valuations. Over half of respondents (56 percent) expect to see these decrease as a result of the new tax code, with this figure most pronounced amongst developer respondents. When looking at the responses of those developing to invest in isolation two thirds (66 percent) predict a fall in values.

In another recent report by DLA Piper, respondents to the "Global Real Estate Annual State of the Market Survey", ranked London as the number one international cities in terms of attractiveness for investment. The UK capital leads the way ahead of Berlin, Hong Kong and Frankfurt.

Although Brexit appears not to have dimmed London's attractiveness for investment the potential outcome was ranked by respondents to the firm's report on CGT changes as the biggest influencing factor on UK real estate investment strategies. Just over a quarter (27 percent) view tax changes as being of paramount importance, whereas Brexit occupied the pole position for almost half (47 percent) of respondents.

Perhaps surprisingly, when the survey was conducted between September and November 2018, as many as one in four (25 percent) of respondents did not know about the impending CGT changes. The number is even higher for intermediaries - over a third (36 percent) are unaware of the upcoming tax changes.

William Naunton, UK Head of Real Estate, DLA Piper, said: "The appetite for investors in UK real estate remains strong in the face of these tax changes. It continues to be a thriving market and one of the contributing factors to this is its remarkable ability to adapt to change. If investors want to avoid being caught out by the new tax code then we advise them to look at the ownership structure of their holdings sooner rather than later."

Commenting on the findings of the report, Richard Woolich, Head of UK Tax, DLA Piper, said: "These significant tax changes represent the latest in a long line of new rules aimed at property investors active in the UK. Given the financial implications for businesses with direct and indirect exposure to the UK real estate market, coupled with the sentiment around valuations, investors should be going through their strategies with a fine toothcomb. There are some opportunities here too. The government should also heed the calls to raise awareness of the tax changes, ensuring they don't lead to further confusion and opacity at a time when uncertainty remains around the UK's relationship with the EU."