London has long been a popular destination for Arab property buyers but cash-strapped officials are now clamping down on owners who have not declared for tax purposes. A new law to be unveiled this month will see overseas buyers hit with an annual bill. Experts debate whether this will stimulate an exodus of Arab buyers to greener pastures
As fireworks light up the London skyline to celebrate the closing of the 2012 Summer Olympic Games, Abdul, a young Qatari investor, decides a property in the British capital will be his next big purchase.
With the recent opening of Qatar-backed The Shard, Europe’s tallest tower, he certainly isn’t alone when it comes to the real estate love affair between Arabs and London.
A quick call to a leading real estate firm in central London and Abdul is bound for the British capital laden down with a list of upmarket $5m-plus properties in the Mayfair area. What’s more, the agent states, as a Middle East buyer he won’t have to pay tax on any rental income the property generates.
The problem is the agent’s information is wholly inaccurate. What’s more, new laws set to be announced in the UK this year may mean Abdul, and other Arabs who have bought up top-drawer chunks of British real estate, will be hit with five- or six-figure annual bills if they want to hold on to their prized assets.
While a few quick calls shows some very high-profile real estate agents in London continue to tell potential clients in the Middle East that their tax free status extends to purchases in the UK, official regulations set out by Her Majesty’s Revenue and Customs (HMRC) — the UK’s tax-gathering body — state that any person not resident in the UK is liable for pay tax on the any property they purchase in the country.
According to Trevor Wilkes, a tax adviser in the international division of London-based firm The Fry Group, this applies to both expatriate British landlords living in the Gulf and renting out their property while they are abroad and Arab investors who have bought properties simply as a second home.
“If the property is rented then as the rental income is regarded as UK-arising income, irrespective of whether the landlord is a UK resident or not, and irrespective of whether they are British or a GCC national, the rental income will be potentially liable to tax and potentially declarable to HM Revenue & Customs,” Wilkes says, adding that HMRC officials are increasingly investigating overseas owners who have not declared their tax obligations.
“Where no declaration of the rental income has been made to the UK tax authorities and they catch up with the landlord at a later stage, depending upon the severity of the situation in not only reclaiming unpaid tax, interest, penalties and surcharges may be levied,” he adds.
Under current regulations, if the property is managed by a professional letting agency, the agency is expected to withhold tax, starting at the base level of 20 percent, from the gross rental income before submitting it to the HMRC to obtain a tax clearance certificate.
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