Large scale increases in and changes to the Capital Gains Tax regime could seriously hurt the housing market, a senior figure has warned.
David Alexander, joint managing director of digital property management platform Apropos, says he is concerned that Chancellor Rishi Sunak has asked the Office of Tax Simplification to review the CGT regime.
The scope of the review specifically calls for an examination of CGT and its use in the ‘the acquisition and disposal of property’ and ‘the practical operation of principal private residence relief’ which means that individual homeowners, landlords and investors could all be seriously affected, warns Alexander.
“While this is only a review and may result in no changes to CGT, it is clear that the Chancellor sees potentially rich pickings among the wealth accumulated in property” he says.
“He needs large amounts of money to fund the government response to coronavirus and one of the easiest targets is always property as it can’t be hidden, and it can’t be taken abroad. However, to tax the value accumulated in an individuals’ home would surely be political suicide. Therefore, the assumption must be that he is looking for income from second homeowners, landlords and property investors.”
Yesterday Estate Agent Today reported growing speculation that Sunak was going to defy expectations and levy CGT on the profits made by owners from some main homes.
Alexander continues: “It is important, at this difficult time, to develop strategies to pay for the pandemic which both encourage economic growth whilst also increasing government revenues.
“Raising CGT rates feels like a move that would stifle growth, discourage investment, and depress the housing market. I think people need to feel they have an asset that is worth something and property has always been a particular British obsession.
“To put a cap on that value may disillusion many.”
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This move would be disasterous as it will put an artifical cap on house prices. Someone trying to downgrade from a home that triggers the CGT will be so materially worse off they would consider not moving at all. The whole market will eventually grind to a halt as pressure switches to new builds to create houses in this bracket for people to upgrade into. Evidently this is a car crash waiting to happen as these new owners get trapped in the CGT net and devalue this bracket in order to move. Note the average house price in the next 20 years and this will give you an idea of the size of the problem being initated now. Suspect this might trigger a housing price crash especially given the 4 year high created by the removal of stamp duty below £500K
Is this about squeezing a bit more tax or about getting the economy properly firing on all cylinders? Generally higher taxes don't produce more tax, people just avoid paying them, and they certainly dont create more activity in that area. I am sure he realises that a few extra quid on a higher rate of CGT whether on BTLs or then on private residences will quickly paralyse the market and be counterproductive. People won't suddenly all sell up to avoid the tax which would be tough anyway in a November to April window, instead they will simply hold on to assets or stay put. If the lead time was to April 2022 or 23 perhaps people would make use of the window if they planned to sell anyway, but that wouldn't create the big bang he is after whether more activity or a bit more CGT being collected.
Perhaps as with the stamp duty, the chancellor plans to have a CGT holiday to stimulate that frenzied economic activity he is after that has far a reaching impact in supply chains and tax collected across the board, as opposed to just one. If he wants to get a load of people moving home and small landlords selling up which has always been a government focus, a temporary cut not a permanent increase is the only way to do it.
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