CGT will deter new investors

Nia Williams

June 21, 2010

RICS has called on the Government to introduce taper relief based on the length of time buy-to-let investments have been owned.

In the May 2010 RICS Housing Market Survey, an extra question was asked regarding the impact of CGT (capital gains tax) on investors. 72% of chartered surveyors who responded believed that a rise in CGT would deter investors from entering the private rented sector. Only 11% believed it would have no effect. The analysis formed part of the RICS emergency budget submission which also includes key recommendations on public sector asset management and for the construction industry.

The responses were strong across all regions with 100% of surveyors in the West Midlands convinced that CGT would deter investors. This was followed by 82% in London and 72% in Wales. The area with the fewest “yes” responses was the North West with 58%.

Commenting on Capital Gains Tax, Simon Rubinsohn, RICS chief economist said: “Our research indicates that an increase in the rate of CGT is likely to deter new investors from entering the buy to let market, at a time of acute shortage of affordable accommodation. And while it is unlikely that there will be a near term glut of supply, a “fire sale” of properties by landlords looking to avoid a higher rate of CGT could if it were to materialize have a significant impact on the fragile improvement in sentiment in the residential sector. In addition, there could well be a drop in the supply of land for housing development. An increase in tax may discourage landowners from putting forward their land for development, which would reduce the number of homes built.

“One way of limiting the damage from lifting the CGT rate is to re-introduce some form of taper relief on income from certain types of asset. With taper relief in place the amount of CGT owed would depend on the length of time the asset has been owned. This would fit with the business model that many people in the private rented sector use, where they own a property for several years before selling it to realise some of the capital value.”

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