Halving of second homes CGT exemption may boost housing supply

Plans to reduce the capital gains tax exemption period for second homes from 36 months to 18 could result in a flood of properties being sold back on to the market and boosting housing supply.

The capital gains tax exemption applies to a property that has been a person’s private residence at some point,  even though they may not be living in the property at the time they dispose of it and may be claiming private residence relief on another property at the same time. 

The current rules allow people to let out their home for a period of three years before they are eligible to pay capital gains tax on any proceeds generated by selling the property.

But in the Chancellor George Osborne’s Autumn Statement it was announced that from 6 April 2014, that period will be halved to 18 months which experts say reduces the incentive to buy a property, use it as a principal private residence and benefit from capital gains tax relief.

KPMG partner Daniel Crowther says: “Essentially what has been announced today reduces the incentive to flip a house – that is to buy a property, use it as a principal private residence and continue to benefit from the CGT exemption for the next three years.”

He says the move could result in a flood of properties being sold back on to the market before the changes are implemented in April.

Crowther says: “Affected owners may well be tempted to try to sell up before this measure bites so we could see a rush of properties coming to the market in the next four months. Whether this will cool the housing market remains to be seen.”

Coreco managing director Andrew Montlake agrees that this could free up homes a lot quicker.

He says: ”Certain sections have been talking about buy-to-let for some time, saying it is taking properties away from first-time buyers and this is one of the first moves by politicians to actually do something to address the issue.

“Previously there was a need for a strong private rental sector but now things seem to be moving on, so the Government appear to be taking action on something they’ve talked about for a while.”