New CGT threatens housing recovery
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Government Capital Gains Tax proposals could force a quarter of property investors from the housing market, according to a survey by LSL Property Services plc, owner of the UK’s largest lettings agent network.
Nine out of ten landlords oppose government proposals to raise Capital Gains Tax for second homeowners and property investors, while 26% of landlords polled by LSL will consider selling their property before the higher tax is introduced.
The proposed tax increases are likely to have an even bigger effect on future investment in the private rental sector. 71% of landlords surveyed state that an increase in Capital Gains Tax will make them reconsider future investment in property.
Although the profitability of property investment is determined by a combination of rental income and capital gains, landlords appear to place greater importance on capital gains.
While 30% of landlords give equal importance to rent and capital appreciation, 36% of respondents consider capital gains the most important aspect of property investment. Of these, a quarter state that they only consider capital gains when judging an investment.
Simon Embley, CEO of LSL Property Services, says: “Over the past two years, investment properties have accounted for 30% of sales across our network - over 40,000 transactions. Foisting a tax-hike on property investors will drive many from the housing market - at a time when its recovery is still perilously fragile. If potential landlords are discouraged from investing, we will see a large proportion of the demand for house purchase disappear, and house prices may fall.
“A further fall in house prices will see more home-owners in negative equity potentially triggering a significant rise in repossessions as owners lose confidence in the market”
Under the new tax proposals, long-term investors will suffer the most. For instance, in the last twenty years, the average house price has risen from £44,880 to £168,202.
This means that an investor who bought in 1988 and wanted to sell would be liable for tax on 40% of £113,222 . As a result, an investor who bought twenty years ago as part of a retirement strategy will face a tax bill of £45,288.
Of the landlords still committed to the private rental sector, 41% are unable to sell property before the tax is introduced because their property portfolio represents their retirement plan.
Readers' comments (1)
Natasha McDonald | 7 Jun 2010 10:58 am
This is a thought provoking and disappointing proposal. It has reconfirmed my resolve to take my money outside of the UK.
In truth I am unlikely to sell quickly - though I believe this shouldn't be completely overlooked. But I will definitely look at investing in property abroad. It has it's difficulties, but if we face such high taxes here, we may as well take the chance elsewhere.
What I find most provoking about this policy is that the country clearly needs the private sector to meet its statutory housing obligations. This is an eample of the lack of integrated policy making that sees the country flat on its face. The more unattractive it is for the private investor, the more likely it will be to see an increase in the amount of homelessness cases.
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