Small tax hike has ripple effect in UK property market
A smaller than expected rise in capital gains tax announced in the UK emergency Budget yesterday will still impact on the property market, experts claim.
Ian Potter, operations manager of the Association of Residential Lettings Agents said that although the rise in CGT to 28% for higher rate tax payers was less than expected it will affect landlords and therefore is likely to reduce supply in the private rented sector.
‘The Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market at a time when they should be actively encouraged to stay and, ideally, further invest,’ he said.
‘In particular, neglecting to include rollover relief is a big gamble, as many landlords will now be penalized by CGT and hit by Stamp Duty when they sell one rental property and purchase another. This may further disincentivise some landlords from remaining in the private rented sector and negatively impact the overall supply of rental property,’ he explained.
Liz Peace, chief executive of the British Property Federation said that simplifying the CGT rise to 28% by not tinkering with taper or indexation relief was welcome but buy to let investors who have propped up the housing market over the last 20 years will suffer.
‘This could hit the future supply of rented housing. As was heard in the Budget speech, there is to be no taper or relief coinciding with this CGT rise which will work against landlords who have held property for a long period,’ she explained.
James Thomas, head of residential development and investment at Jones Lang LaSalle said that the CGT rise will not support or encourage investment in the private rental sector. ‘It sets a precedent for the housing market which might cause investors to be wary around punitive taxation affecting investment in UK housing. CGT will become a disincentive for investment in housing, with buy to let and the private rental sector facing a higher tax burden in the future,’ he said.
Yolande Barnes, head of Savills residential research, said that the Budget reinforces Savills’ prognosis that the mainstream UK housing market will see a second slip in values over the next 12 to 24 months. ‘We anticipated as long ago as the summer of 2009 that the housing market would see further falls in 2010. The Chancellor today outlined some of the forces and factors behind this prognosis and gave us no reason to revise our views,’ she said.
‘The pain will fall on just about every household in Britain and this will undoubtedly curb consumer confidence. The effect will be to suppress spending and that will include spending on homes. Some markets have already stalled in the run-up to the Budget and it is probable that post Budget sentiment will continue to suppress transaction levels,’ explained Barnes.
Property in the north of the country could suffer the most as cuts fall disproportionately hard on some regions, she argued. ‘More worryingly, austerity measures will work against mortgaged owner occupiers and will pose a real threat to those seeking to remortgage,’ she added.