Leader: Kill or cure decisions loom

7 June 2010

In two weeks’ time we’ve got the government’s emergency Budget to look forward to. The big question for the housing market is what chancellor George Osborne says on the subject of Capital Gains Tax. Many professionals will be hoping he says precious little about it amid rumours of plans to hike CGT from its current 18% mark to either 40% or 50%.

There have been rumblings from some in the Cabinet that the government has listened to expert opinion and will water down the plans. But there’s no getting away from the fact that the coalition needs to cut the national debt, and hacking and slashing will only get it so far.

If a 40% or 50% tax was slapped on second homes there is a worry we will see an exodus of landlords only in it for the capital gain on the sale of properties. The coalition’s canning of Home Information Packs was intended to encourage more sellers to enter the market, with the rallying cry that a barrier to speculative selling had been removed. A hike in CGT could be another way to increase the amount of property for sale, but if there’s too much it could hit prices.

With many would-be buyers locked out due to the large deposits required, a lack of serious buyers and masses of property up for sale could be a lethal combination.

If the government ramps up CGT it would need to broaden the £250,000 Stamp Duty threshold to all buyers as well as offer other incentives to keep consumers buying. And it goes without saying that it would also need to take a serious look at kick-starting wholesale funding to get banks and building societies lending again. But for now, the government’s silence on that subject speaks volumes.

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