Less than expected hike in capital gains tax welcomed by UK property industry |
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| News - Tax | |||
| Written by Ray Clancy | |||
| Wednesday, 23 June 2010 10:00 | |||
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Opinion is divided today over the effect of the rise in Capital Gains Tax to 28% for high rate tax payers on the UK property market but the move has been generally welcomed. It is a non issue according to Liam Bailey, head of residential research at international consultants Knight Frank. ‘The proposed increase was heavily trailed in advance. In reality the rise to 28% for high rate tax payers is a non-issue for the housing market,’ he said. He pointed out as the rise came into play within in hours of the Chancellor George Osborne’s speech there was no sudden sell-off of second homes or investment properties. ‘The new rate takes us back to a similar rate to where we were under the pre-2008 rules, when taper relief was able to reduce a 40% headline rate of CGT to 24%. With higher rate CGT at 28% the argument for property investment still looks strong and capital gains still compare very favourably with income tax at 40%,’ explained Bailey. On the longer term outlook Bailey points out that with strong GDP growth forecasts for 2011 and 2012 the inference is that the Bank of England will be encouraged to maintain a very loose monetary policy for longer than recently expected, suggesting interest rates at current levels could be maintained for longer. ‘This would underpin house prices and also contribute to ongoing low supply in the market,’ he said. Liz Peace, chief executive of the British Property Federation said that simplifying the CGT rise to 28% by not tinkering with taper or indexation relief was welcome but buy to let investors who have propped up the housing market over the last 20 years will suffer. ‘This could hit the future supply of rented housing. As was heard in the Budget speech, there is to be no taper or relief coinciding with this CGT rise which will work against landlords who have held property for a long period,’ she explained. Richard Sexton of e.surv Chartered Surveyors, the UK’s largest residential surveyor and valuer, said a 28% CGT rate is better than expected and offers some comfort to investors who will be less inclined to desert the sector. ‘In the absence of a wider economic downturn, it is hopeful that the market will continue its gradual recovery in values and transaction volumes. The clarity and the immediate change is good news for the housing market according to James Thomas, head of residential development and investment at Jones Lang LaSalle. ‘However, the 10% rise will not support or encourage investment in the private rental sector. It sets a precedent for the housing market which might cause investors to be wary around punitive taxation affecting investment in UK housing. CGT will become a disincentive for investment in housing, with buy to let and the private rental sector facing a higher tax burden in the future,’ he said. Yolande Barnes, head of residential research at property adviser, Savills, said that a higher rate taxpayer who bought the average priced home 10 years ago, as a second home or investment, and who sells it now, the changes will mean that they pay an extra £7,500 compared to what they would have paid. ‘This represents an extra 56% in tax on the £85,000 gain,’ she added. Longer term she expects it to discourage individual investors who make up the vast majority of residential property landlords. ‘Although the luxury of a flat 18% CGT was only in place for two years, its demise removes the incentive for investors to gear up against the expectation of significant capital growth’ she explained. The change will, however, begin to level the playing field between investment returns comprised of income and those derived from capital gains. This means that there is less incentive to look for high capital growth prospects as against yield and rental growth. This may start to subtly influence investment decisions in favour of the latter,’ Barnes added. Add this page to your favorite Social Bookmarking websites          
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