UK property faces a taxing issue

The vast majority of people have looked on the British Government in recent years as being regressive in tax terms, and not progressive. It may have had a socialist and redistributive history, but the 21st century version of the British Labour Party has been distinctly conservative – and the rich have got richer during its 12 years in office.

That conservatism meant property markets which previously relied on rich Britons seeking friendly tax regimes suffered a lot. Fewer Britons moved to Switzerland and Monte Carlo, and the allocation of homes on the Channel Islands allocated for "open market purchase" by well-heeled individuals from the British mainland was rarely met in recent years. There was simply no need to move to offshore locations – Britain was, as one real estate expert put it, "a little tax haven of its own".

Now that seems to have changed.

In many ways, the change has been one of perception. There are still relatively few taxes on the wealthy in Britain, compared to years past, and there certainly has been no outflow of prominent Britons moving their businesses overseas.

But residential developers and realtors clearly feel there is something in the air. For example Alpine Homes International, a company which previously specialised in building and marketing ski resort property in Switzerland, has teamed up with more established Swiss estate agents Gérofinance-Dunand and Riviera Properties. A recent presentation in London made it clear that their target was the business leader who was disenchanted with shortcomings in the UK such as commercial and residential property price falls, uncertain and unpredictable government policies, and a declining national status in the recession.

Partly this is a survival move by Alpine Homes (after all, its traditional market of Britons buying holiday homes overseas has effectively dried up, and looks unlikely to recover for the next few years). But partly it is tapping into a mood that the British tax regime for the wealthy is more chaotic and less favourable than before.

Now Taylor Woodrow, Britain's largest developer, is doing the same thing. It is running advertisements in Britain with the slogan "Escape high UK personal and business taxes by investing in Gibraltar" and is now organising seminars to explain the fiscal benefits of being based in Gibraltar – and buying a TW home there, to boot.

Gibraltar enjoys no capital gains tax, no wealth tax, no inheritance tax or death duties and no value added tax. So do many other locations, of course, and they enjoy more modern and interesting reputations than those of Gibraltar, but you see the point – the perception if being put across that Britain has a business-unfriendly

tax regime. Now of course, TW is also fighting for survival. It has the unfortunate long-term strategy of specialising in residential construction in Britain, Spain and the United States – the three countries suffering the largest housing downturns – so it badly needs to find new markets.

There are companies touring Britain debating the favourable tax regimes that exist in parts of the Middle East, Monaco and the Channel Islands, too. Once again, the aim is to persuade wealthy Britons to leave these shores and head for other locations.

Will this onslaught work?

One well-respected London estate agent told me recently that actually, it is all just showmanship. The historic returns for property owners in London are far greater than in most of the

low-tax alternative destinations and recent tax reversals – chiefly the much-publicised tax on non-domiciled foreigners based in Britain – has actually turned out to be a minor blip rather than the start of a high-tax regime.

But it is a matter of perception, he says. The property industry has leapt on the non-dom tax issue and claim it is the thin end of the wedge and are saying that Britain is changing – and changing for the worse, so far as the better off are concerned.

If enough people say enough times to enough other people that Britain is becoming more highly-taxed, that perception may grow, he believes. The business community's mantra of "having to have a London base" will become less of a given. Perhaps Geneva or Paris would do instead?

This is a delicate tightrope for the property business to walk. Most people believe next year will see a Conservative government elected in Britain but (such has been the change in the country's political landscape in recent years) it may not loosen tax for the rich any more than Labour did.

In other words, things may not change much in Britain whichever party is in power.


- The author is a Property Correspondent of the Observer

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