Thursday, June 3, 2010
The UK government's capital gains tax (CGT) proposals could force a quarter of the UK's real estate investors to quit the housing market, a new survey from the UK's largest lettings agent network has warned.
The survey, undertaken by LSL Property Services plc - owner of the UK's largest lettings agent network, including national chains Your Move and Reed Rains - reveals that nine out of ten landlords oppose the new proposals, while 71% of landlords said that they would be reconsidering future investments in property. 26% of respondents definitively said that it if the proposals were introduced, they would leave the sector before the new tax is introduced.
Commenting on the survey's findings, the Chief Executive Officer of LSL Property Services, Simon Embley, stated: “Over the past two years, investment properties have accounted for 30% of sales across our network – over 40,000 transactions. Foisting a tax-hike on property investors will drive many from the housing market – at a time when its recovery is still perilously fragile. If potential landlords are discouraged from investing, we will see a large proportion of the demand for house purchase disappear, and house prices may fall."
LSL has said that under the new tax proposals, individuals with long-term investments in real estate will be the most affected. In the last twenty years the average house price in the UK has risen from GBP44,880 to GBP168,202. An individual relying on a property purchased twenty years ago, as part of a retirement strategy, the firm explained, would be liable to a tax of bill of GBP45,288 on the sale of the property under the new proposals. In addition, around a third of respondents said that they would be unable to sell their property before the tax is introduced because their property portfolio represents their retirement plan.
Embley added: “If the capital gains tax is to be overhauled, we need to see the reintroduction of taper relief. As it stands, the new tax regime will rein in future investment – not to mention hammer investors who have already bought second homes for a retirement nest egg. Prudent property investment is a long-term venture, and the new government needs to take this into account, not penalize it.”
Tapered relief was originally introduced in 1998 before being replaced by the Entrepreneurs Relief in April 2008. It exempted a percentage of an investor’s capital gain depending on how long the asset was held. For example, a property sold after three years would qualify for the minimum of 5% taper relief, whereas a property held for ten years would qualify for the maximum of 40% taper relief.
"The private rental sector is vital to housing the UK’s growing population. There is a chronic shortage of residential housing available – and this is going to get worse. Social housing will not cover the shortfall. The government needs to encourage the growth and professionalization of the sector – not deter it," Embley continued.
“This potential new tax will discourage institutional investors as much as it will private landlords from entering the market. We would like to see the government encouraging investment from trusts and property funds by abolishing stamp duty for property investment vehicles like REITS (real estate investment trusts), and waiving the 2% fee these trusts face when entering the market.”