Chartered surveyors call for taper CGT tax in tomorrow’s UK emergency budget

In its emergency budget submission the Royal Institution of Chartered Surveyors says the move will particularly affect the private property rented sector and it calls on the government to introduce taper relief based on the length of time buy to let investments have been owned.
 
In its May 2010 Housing Market Survey an extra question was asked regarding the impact of CGT (capital gains tax) on investors. Some 72% of chartered surveyors who responded believed that a rise in CGT would deter investors from entering the private rented sector. Only 11% believed it would have no effect.
 
The responses were strong across all regions with 100% of surveyors in the West Midlands convinced that CGT would deter investors. This was followed by 82% in London and 72% in Wales. The area with the fewest ‘yes’ responses was the North West with 58%t.
 
‘Our research indicates that an increase in the rate of CGT is likely to deter new investors from entering the buy to let market at a time of acute shortage of affordable accommodation. And while it is unlikely that there will be a near term glut of supply, a fire sale of properties by landlords looking to avoid a higher rate of CGT could, if it were to materialize, have a significant impact on the fragile improvement in sentiment in the residential sector,’ said Simon Rubinsohn, RICS chief economist.
 
‘In addition, there could well be a drop in the supply of land for housing development. An increase in tax may discourage landowners from putting forward their land for development, which would reduce the number of homes built.
 
‘One way of limiting the damage from lifting the CGT rate is to re-introduce some form of taper relief on income from certain types of asset. With taper relief in place the amount of CGT owed would depend on the length of time the asset has been owned. This would fit with the business model that many people in the private rented sector use, where they own a property for several years before selling it to realise some of the capital value,’ he explained.
 
RICS has also called on the Government to ensure that public sector asset cuts are strategic, sustainable and focused, avoiding a damaging slash and burn approach. It says that the Government must recognise the lead-in times for change in property and focus on a strategic plan for major, sustainable running cost savings, while using market intelligence to seize disposal opportunities
 
Continue mapping the total public sector estate to identify and eradicate surplus properties and inefficient space usage, especially where collaboration between agencies will lead to greater efficiency is also needed and it calls for ministers to accelerate the development and recognition of asset management skills across government, with professional body and private sector help.
 
The paper also suggest that government should take advantage of the high multiplier effect in the construction sector resulting from its low reliance on imported materials, extended and varied supply chain, and relatively high labour intensity as a vital engine of economic recovery and long term growth, by not reducing capital spending below the April 2010 budget figures.
 
‘The massive budget deficit has created a burning platform for strategic public sector asset management as a big part of the solution. The danger is that pressure for short term cuts and quick disposals will not achieve real value and will deplete the pool of professionals capable of delivering the best practice that is out there,’ said Mark Goodwin, RICS director of external affairs.
   
‘The construction industry is a powerful engine of recovery, growth and employment. Reducing capital spending further would entail short term as well as long term risks to the economy,’ he added.