Or just when you thought it might be a good time to invest in property…
At Open Property Group we like to make sure we keep our finger on the pulse of what’s happening in the property market, and to say that pulse has been racing lately is an understatement!
We all know and appreciate the problems the economy is currently facing. Never in our lifetime has the economy been in such a delicate position with the Government borrowing enormous sums of money to balance the books.
The big question is, where are we going to repay the borrowing from, recent announcement from the Government have given us more than a clue and it may not be good news for some property owners.
A recent report, commissioned by the Chancellor, recommends a tax raid on the buy to let property market that could raise up to £14billion.
With the Government finances taking a battering they are in desperate need of repair. The report recommends a major overhaul of Capital Gains Tax (CGT) and a potential tax raid on buy-to-let properties.
With Britain’s national debt climbing beyond £2trillion (more than 100% of current GDP), and tax receipts disappearing to a comparative trickle, the Government clearly seeks new sources of revenue generation to drive income for the Exchequer.
Currently there are four different rates of CGT. A basic rate income tax payer pays 18% CGT on second homes and buy-to-lets, and 10% on other assets. Higher rate taxpayers, the rates are 28% and 20% respectively.
The Office of Tax Simplification has said, “A rough static costing suggests that alignment of CGT rates with income tax rates could theoretically raise an additional £14bn a year for the Exchequer.”
The possible implications for landlords who have made profits since investing in buy-to-let, would likely to be among one of the losers from any rise in CGT.
There are of course alternatives and many landlords may decide to hold onto property as opposed to disposing of it and falling foul of the revised CGT requirements.
In an additional twist there may also be a reduction in the annual CGT allowance with could possibly also be under review. This allowance means that the first £12,300 of profits from trading in property, and shares, is free of any CGT. Suggestions from Office of Tax Simplification indicate a reduction between £2,000 and £4,000, another blow to property investors.
At the moment, the implications of such changes to the tax regime are clearly not fully understood.
There could quite possibly be a significant rise in the sale of second homes combined with landlords offloading their portfolios before any changes come into force, with the resulting impact on house prices and a flood of properties onto the market. If so, this could lead to increases in rents with less rental properties in the market – not something the Government would not want to see in the current climate.
Maybe not. Some industry experts are saying that it could be a bonus for the property market in general. Just as the stamp duty holiday implemented by the Government acted like a shot of adrenalin into the market, so could any potential tax rate changes.
Investors and portfolio owners could spark a rush to sell before higher CGT rates come in, although this also has its challenges with landlords needs to gain vacant possession if selling to non-investors.
At Open Property Group we always try to keep an open mind. We are still in the early stages of any likely changes and although we know that change is coming, what may be bad news for landlords, could be good news for the market in general.
Any tax legislative changes could mean more landlords would potentially look to sell their properties, and more established landlords may need to consider what their potential exit strategy might be. Our recommendation would always be that portfolio owners should be continually reviewing their options.
It’s very difficult to stay one step ahead of likely changes such as this but, with the Government needing to find new ways to balance the books, we all need to be sure we keep one eye fully open on the road ahead.
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