The Chancellor of the Excheuer has written a letter to the Office of Tax Simplification (OTS) requesting it to undertake a review the Capital Gains Tax (CGT) regime.
The possible outcome of such a review could cause homebuyers, investors, and landlords to exit the market if major increases in tax were proposed and subsequently introduced in the near future, says David Alexander, joint managing director of property management firm Apropos.
The scope of the review does specifically call 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.
“While Rishi Sunak’s interventions last week to stabilise and encourage the housing market were welcome this announcement is less so,” says 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 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.”
Alexander continued:
“Targeting the private rented sector (PRS) is extremely risky as it is the second largest provider of homes in the UK and it would be impossible to fill this gap if there was a mass exodus from the market over a short period.
“Equally any sudden increase in CGT for this market could flood the market with homes and depressing prices at a time when the property sector is in desperate need of support.”
“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.
“Equally the PRS and property investment sector need to feel that the UK is a safe and profitable market now and, in the future,, and this could divert money from the UK to other markets at a time when it is most needed.”
The Review calls for response on the principles of capital gains tax by 10 August 2020 and on the main section of the call for evidence by 12 October 2020.
Welcome to the wealth tax.
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The role of the Government is to attract foreign investement – so THEY can be ones taxed, leaving less tax imposition on the domestic populace.
Sadly UK Government after Government – in fact no lessons learnt since America won the war – have failed to get that point.
So of course, expect more tax.
(That said, we still have Brexit to come – and which foreign country will want to invest in a ‘we can do it without the rest of you’ country)
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You are totally correct about that. But it might be that the Government has been smarter than we think. But suckering so much filthy money into London property, the Treasury has a sitting duck target. I reckon they will be taking careful aim at it now. And the beauty is that unlike Dollars or Bitcoin it can’t be whisked away. Once the new taxes are in place on foreign-owned property if they aren’t paid we just seize the asset and sell it. Land Registry is “sovereign”. It is hugely powerful. So watch this space! It would be unbelievably popular in the country to raise taxes significantly on absentee foreign owners.
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Taxing absentee foreign owners would be incredibly popular and should be implemented as a priority. It should have been done years ago. One of the reasons I moved out of London last year was the explosion of high rise blocks of luxury apartments, with little or no social/affordable housing due to ‘viability’… in Labour-run Hounslow. And it shows no sign of slowing down. I watch in horror as the next 25-storey monstrosity is pushed through Planning! These apartments are marketed to mainly far eastern buyers who never set foot in the UK let alone ‘their’ property. London property is viewed as a safe and profitable place for their money and most are never occupied because it’s more profitable and less hassle (as we landlords can testify!) to leave them empty and wait for capital appreciation. While I was living elsewhere I did it with my main home for 4 years before selling. If these hundreds of thousands of foreign owners see their massive capital appreciation taxed heavily, they will look to sell quickly and take what profit they can, and we could see a fundamental change to the housing market in our big cities.
We could see a structural reset of the employment market, with working from home and mass unemployment likely to have a disastrous effect on inner cities. People have got used to working from home and not being held accountable for their time, and are thinking of all sorts of excuses for avoiding going back to doing a proper job. Civil servants have sat at home on full pay; not even on furlough, and they are not the most productive sector in the best of times. All the support infrastructure for the millions of workers will be decimated. Coffee and sandwich shops, restaurants, water cooler providers… Wages will drop, meaning rents will need to drop. Evictions will explode, meaning people will need to fall back on (non-existent) social housing. But if landlords are taxed still further out of existence, the availability of rented accommodation will fall still further as their exit from the sector accelerates. We already have housing lists we cannot meet, and this can only be exacerbated by immigration (not something socialist councils want to accept ).
So, how will the massive demand for social housing be met? We could start with previously foreign-owned apartment blocks. Existing occupiers may not appreciate being surrounded by social housing, and the freeholders certainly won’t relish the idea. But they’ve already made their money and will no doubt try to rip-off the councils.
It just goes to show how everything is linked and so delicately balanced. If one domino falls, the rest will topple. The scale of the damage just depends on where in the chain the first one falls.
Dystopian? Well, life is going to get really tough for so many.
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This Government seems hell bent on attacking the middle classes and those who have worked hard to try to secure their own futures. They seem to have lost the plot and the majority they achieved leaves them thinking they are supported by the masses; the masses who were even more worried by the left wing lunatics called the labour/marxist party (explains why they had a landslide victory). They are anti landlord and now seem to want to not only milk us with biaised taxation whilst protecting their rich mates and corporates.
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9.25 am already had calls and emails from landlords wanting to sell because of this next potential threat to their business
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Another anti landlord measure or maybe it’s just another step in the re-set of property wealth held by the few.
Those born in a certain era benefitted from exponential property price growth and loose bank lending – all of which facilitated acquisition upon acquisition. Many accumulated property at a rate which forced the young and locals out of the market.
Market economics; I get that – but it doesn’t seem right that two working people forming one household are unable to provide shelter for themselves on an ownership basis?
Looking at the popularity of Corbyn with the young during the recent elections – this will play out to as a wholesale correction in prices – Covid tax collection will just be another smokescreen to achieve what’s required.
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Rubbish. Interest rates were over 15% on mortgages in 1980 not the single figure rates you all benefit from now. In turn inflation run high but it was at the cost of high interest charges. In inflationary times property prices rise and the perception of wealth is grown. It has always been tough but as you get older you own more because you have worked years to accumulate wealth providing you haven’t wasted your earning on flash cars, holidays abroad and the latest fashions. A littled tired of the rubbish spoken by those who have listerned and believe the fake stuff put out by those who are disappointed. May be you need to be paying 15% on your mortgage so your property inflates at a higher rate to show the perception of wealth. Repeat it has never been easy!
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mmmm Will.
Interest rates were over 15% on mortgages in 1980 – What was the multiplier for lending, the average wage and the average house price relative to income during these times you speak of Will?
We are not presently enjoying an inflation event (circa 1970’s) Will – Wages are decreasing and something more akin to deflation is on the cards.
You sound a bit Boomer to me – Now you suck it up Will theres a good fellow – structural change is upon us.
Consumerism is over. Maggies 80’s yuppies, Stockbokers and credit line is finished. Dickensian times await.
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A little arrogant, young man!
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Higher tax % doesn’t mean higher tax levels to the government, just less transactions, so worse for everyone.
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