Skip to content

UK could see rush of properties for sale if huge capital gains tax rise goes ahead, experts warn

It is widely expected that CGT will rise from its current 18% to 40 or 50% which means that buy to let landlords are likely to end up paying at a rate similar to their income tax level.
Everyone has an annual CGT free allowance of £10,100 per year, beyond this gains on second homes, shares and other investments see the tax charged at 18%. Due to the nature of not being able to sell chunks of properties over a period of time in order to minimise CGT, property investors are hit hard by the tax.
Depending on whether changes are brought in immediately, which is unlikely, or from April 2011, a rise in CGT could prompt a rush of buy to let investors selling up to avoid seeing their tax bill double.
The National Landlords Association is calling for buy to let investors to be considered as businesses or entrepreneurs and therefore be exempted from higher CGT. ‘We are concerned that a tax increase of this nature will act as a barrier to further investment in residential property just at a time when there is an urgent need for more housing,’ said NLA chairman David Salusbury.
‘The NLA will be doing everything we can to ensure that landlords’ activity is considered to be business activity for the purposes of CGT. There should be further consultation with the industry before drastic changes are made. The law of unintended consequences should be considered here,’ he added.
A higher tax on investment property could prompt a flood of homes coming onto the market. ‘Many second home owners and investors will see this as an opportunity to come out of the market for the short term. Even if they were to hold onto the properties for any increase in value over the next three or four years, this increase is unlikely to surpass the rise in what they have to repay to the Treasury,’ said James Hyman, of Cluttons, the surveyors.
‘In advance of these changes being formalised we are likely to see people scramble to take gains, prompting a rush of sales of second homes and share portfolios,’ said Ronnie Ludwig, partner at chartered accountants Saffery Champness.
Stuart Law of property investment firm Assetz believes it will have a negative impact on property investment in the UK.
‘Some local markets could be oversupplied in the second half of 2010 and early 2011, and residential property investments could become less tradable in the longer term,’ explained Lucian Cook, residential research director at Savills.