How will a CGT overhaul affect Landlords and the housing market?
If you own an investment property
, you're very probably aware that the Chancellor just asked the Office of Tax Simplification (OTS) to take a look at how Capital Gains Tax
(CGT) currently works. That move has unsurprisingly caused much speculation about what form any changes could take – if they even happen. While it's probably wise to keep an eye on proceedings and maybe also to have some contingency plans in place, the truth is, what's going to happen is by no means certain.
What's the expected timeline of the review, and why are the CGT changes happening?
Sunak's review essentially requests a response by mid-August. Some observers suspect that there's a determination here to hit property investors
and second home owners
hard. The feeling is that restructuring CGT is seen as a viable method to begin recouping the costs of wildly expensive measures put in place due to the COVID-19 pandemic
. A way to start to refill the treasury coffers without upsetting a massive proportion of voters. Speculators also think the timing of the move means the aim is to get the ball rolling in time for the Autumn statement, which is due in November. Read a recap on the announcements from the last budget here
Yet, is that what's really going on here? While it could well be true, it's also a possibility that the move is genuinely aimed at simplifying this area of tax procedures, and making the current system more 'fit for purpose' – as Sunak's open letter stated. Because of that, the fact of the matter is we don't yet know what changes will arise from the review. We're in the dark about the real motives behind the move. Nobody knows yet what Sunak's request will mean for the property market.
Related: Transferring Ownership Of Property From Parent To Child: How To Get CGT And IHT Relief
It's a time to encourage property market activity, not to depress housing prices
Again, landlords and other second home owners are currently merely speculating on what the changes could be. It's also true that the present government has stamp duty incentives in place. Those measures are designed to stimulate the property market and help the economy.
Making such profound changes to the way CGT gets collected could have the opposite effect completely – forcing some to put off any plans they had for selling. While other investors might decide to sell whole portfolios, adding a risk that more properties will hit the market and negatively affect house prices. After all, a healthily active market usually results in increased government revenue. One that has been flooded with vacant properties, is devoid of willing investors, and awash with higher-income sellers clamming up and staying put won't achieve anything of the sort.
Sometimes, it can prove wise to get all the facts before you make a move
It's certainly no surprise there's been such widespread chatter and concern since Sunak published his open letter to the OTS in mid-July. The present for landlords and property investors was an uncertain one before this review into CGT even happened.
Tenants and landlords alike have been steamrollered by the pandemic – as has every other area of the economy. Recovery from that was never going to be easy. Many will inevitably feel the effects of widespread job losses and massive government spending. Changes to taxation are unavoidable, but is it wise to target a rental market that relies so heavily on private landlords in such a situation? People need somewhere to live – and in the UK, a great many of those people live in private rented accommodation.
The property market has been busy adapting to the new normal – and things are getting cheaper for landlords
The fact is that the property market has been working hard at adapting to life under lockdown. Industry professionals continue to find ways to conduct business during the time of COVID-19. Agents are innovating rapidly, discovering new ways to turn the cogs of an industry that in the past, relied heavily on face-to-face meetings and viewings. The technology for remote inspections and electronic tenancy agreement and document submission and signing is already here – and it's getting put to increasingly good use.
As money gets tighter and interaction in person becomes increasingly impractical, landlords are also being offered online-based, cost-effective ways to let property. While it's natural to view the likely upcoming changes to CGT pessimistically, jumping before one actually gets pushed could turn out to be a rash move. There's also a considerable argument for feeling like maybe the UK would be a lot worse off with many of its private landlords gone for good.
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