Potential £1.3bn capital gains tax cut could be better spent elsewhere – Goodall

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  • 25/10/2018
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Potential £1.3bn capital gains tax cut could be better spent elsewhere – Goodall
The housing market has experienced many changes and with the Autumn Budget imminent it’s no surprise many property investors have been put off making any new moves for fear of extra taxes or changes in regulation. And they would not be wrong to suspect it.

 

Among the ripple of predictions that have waved their way across the media, there have been rumours of an increase in stamp duty, as well as a counter drop in Capital Gains Tax (CGT) for buy-to-let landlords selling to tenants.

However, what I believe the housing market and landlords really need from the Budget is a period of calm, giving us space to understand how the recent changes will play out.

Particularly at a time when economic uncertainty looms over the nation in the form of Brexit, any further changes would not only complicate the situation but would potentially also slow the property market.

 

Paralyse the market

Broadly speaking, a rise in stamp duty would paralyse an already poorly-functioning sector. While the tax is useful for the market to minimise transaction costs in a way which would allow homeowners to upsize or downsize, the recent 3% addition has really hit investment in the buy-to-let sector and continues to hugely impact rents.

This is turn affects tenants, especially as wages have not significantly increased to maintain levels of affordability.

The cost of living and renting must grow in line with demand, and an increase in stamp duty would push us further away from this ideal, making it more difficult for landlords and tenants in an already challenging economic climate.

 

CGT cut

In contrast, a potential cut in CGT could improve the property market for both landlords and tenants by incentivising the former to rent their properties to a single tenant or group of tenants for longer than three years.

Currently landlords must pay a tax of up to 28% on profits when they sell a property – the new idea suggested by Conservative think-tank Onward instead allows the landlord and tenant(s) to split the profits equally.

However, at an estimated cost of £1.3bn a year, the money could probably be spent better in other ways.

 

Refurb tax relief

Despite recent changes in the sector, the housing shortage continues to be a major problem.

While an obvious solution is to build more houses, I believe tax relief should also be awarded to property-owners looking to increase the supply of housing through refurbishment.

More than simply having enough properties to meet demand, it is important that all buy-to-let properties are in a condition suitable for renting.

Not all available housing meets this standard and an update to the current stock would undoubtedly have a much quicker impact on tenant demand than building new homes from scratch.

It would also improve the cleanliness and appearance of the wider community in a way which would likely increase the overall desirability of the area.

The Autumn Budget is an opportunity for the government to provide the housing market with a much-needed period of calm.

As the changes play out however, government should consider more ways of incentivising landlords and providing a relief in tax to improve the overall movement of the market.

 

 

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