Tax hikes could kill off rental sector, say critics

Moves by the Coalition to raise Capital Gains Tax could decimate the buy-to-let market, with fears of a fire sale as landlords rush to dispose of their properties before the hike.

The new Government is looking to charge CGT at the same rate that people pay their normal income tax – ie, 20%, 40% or 50%.

It means that in most cases, CGT will be paid at 40% rather than the current 18%. The steep rise would chiefly hit landlords selling buy-to-let properties and people disposing of second homes. The hike is likely to kick in next April, although this is not clear.

Estate agents are already reporting instructions from landlords desperate to sell up ahead of the huge tax hike, and Malcolm Harrison – who was instrumental in getting ARLA off the ground – warned that new investors will stay out of the property market.

He said: “This will hit buy-to-let where it hurts. It seems a very odd move to me – damaging a sector of the housing market at exactly the time when more investors are badly needed to fill the demand for rental accommodation.”

The Coalition’s agreement statement says on the subject: “We further agree to seek a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.”

Ian Potter, operations manager of ARLA, warned of the threat of a fire sale as investors offloaded properties, and said the tax hike posed “a grave threat”. He called for clarity, suggesting that the Government could make landlords exempt or give them rollover relief.

The British Property Federation’s chief executive, Liz Peace, said: “Buy-to-let landlords will bear the brunt of this 22% tax rise, and while the public at large may have little sympathy with those profiting from property sales, ministers must recognise the massive contribution that these people have made to housing supply over the last decade.

“Over a million more people rent now than in 2001 and this has been made possible through buy-to-let investment.”

However, Jonathan Haward, of County Homesearch, a home-finding company, applauded the likely rise in CGT.

He said that as second-home owners sold up, it would free up properties for local people in places like the West Country, Cotswolds and Wales, where “absentee owners contribute to the closure of schools, pubs and local businesses”.

But he called for a 12-month delay before enacting the tax rise, to allow time for second-home owners to put their properties on the market.