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The most predictable event of the year is underway. After months of talking about how taxes won’t rise for working people, the new Government is of course now looking at ways to raise taxes.
Capital Gains Tax is on the radar, and it looks as if we’ll see the amount of tax due on gains increased and/or the threshold reduced again.
I’m sure most of us agree that public finances are clearly in a bad way and our services are cash-strapped and failing. Money must come from somewhere.
On that basis, CGT is a sensible choice. It doesn’t affect the average person, and when thinking about CGT it’s worth always asking yourself this question: How many people do you know who pay it on a regular basis?
By increasing the amount, it puts so-called unearned income on a par with earned income. Many would argue that it doesn’t seem fair that someone selling a spare properly pays less tax on a well-timed gain, than somebody slogging away 9 to 5.
£50,000 earned in work allows the employee to keep about £39,500 of their income. If you make the same money selling a holiday home or BTL and you’ll keep more like £43,000. That doesn’t seem fair.
But whenever something changes with Government intervention, there are often unintended consequences.
So what might they be for the property market? Well, thanks to tax hikes and legal changes, we’ve all fallen out of love with buy to let. Fewer are buying them, and more are selling. We see the result of that in rent hikes in recent years.
A CGT increase will encourage more to sell soon and fewer to buy. With high interest rates there is no good reason to buy a rental property apart from the hope of a capital gain. Tenants will be hit yet again. Family do-er uppers will be discouraged as well. The kind of people who club together to restore a ruin and resell it.
These will be more likely to be bought by companies who won’t be as affected by the tax change. We’re therefore likely to see further corporatisation in the property world, much like the smaller landlords who have exited. Those who will trade in property will increasingly be companies who can avoid CGT with more complex structures. Is this a bad thing?
We shall see. But it does feel like another step down the road of restriction.
Jonathan is the founder of House Buy Fast.
For more information visit www.housebuyfast.co.uk
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