What will the first 45 days of the new government bring? Rumours are rife, and I emphasise the word rumours, that CGT rises will be damaging to the housing market because of its potential impact on BTL properties.
As there has been little comment from the government about the detail behind the proposed hike in CGT it has been filled with guesses, which hopefully most will turn out to be unfounded. However, there is a real risk that a poorly thought through tax rise could be severely damaging to the housing market just at a pivotal moment in its progression. If a moratorium that allows people to sell property by a certain date and thus avoid a CGT rise is announced, this could be disastrous for house prices.
There are three million houses in the private rental sector of which a significant majority are owned by individuals who could be caught, so just imagine what would happen if a big chunk of these were all fire-sold at the same time. Equally if you raise taxes immediately this could have a very negative effect on future BTL purchases and might encourage existing landlords to decide to never sell their properties; thus creating little or no incremental tax revenue in this parliament.
In my opinion the most palatable option is to maintain the existing CGT allowance and increase the taxable rate to the individual’s marginal rate of tax or 25% whichever is the lower. Putting the rate up to 40% is a penalty on investment acumen whilst a 50% top rate is nothing short of daylight robbery. By keeping the rises reasonable we might just find that it raises more taxes, in this case less really could be more.
