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.”
“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.