A prominent industry figure is warning Chancellor Rishi Sunak not to use property taxes to bail out the government over the costs of Coronavirus.
Capital Gains Tax, possible council tax revaluation, and further changes to stamp duty are amongst the tax options at the centre of speculation about what Sunak will put in his Budget on March 3 as he tackles the UK’s growing deficit.
Now David Alexander - a prominent figure in the Scottish industry in particular, and joint chief executive of property management platform Apropos - says tax rises of that kind could have “an unprecedented negative impact” on the market.
It is rumoured that the CGT changes could be introduced as early as March 3 itself - the day of the Budget - to pre-empt any potential exit from the property market if the policy were to have delayed implementation.
If the predicted change to the rate of CGT rises in the Budget to match tax rates, then higher rate taxpayers will see an increase from 28 per cent to 40 per cent.
Alexander fears that on a property investment over 10 years this would mean that the annual gain for landlords, second homeowners and investors would be between 1.9 and 2.2 per cent per year.
“Given the additional costs involved in stamp duty land tax and land and buildings transaction tax in Scotland, it makes property investment difficult to justify given the financial risks and the increasingly poor returns. The Chancellor not only risks killing investment in the UK property market and causing a shortage of homes for private renters but could create turmoil in the housing sector for years to come” adds Alexander.
He continues: “It is understandable that the Chancellor must seek ways to recover revenues from the enormous debt incurred due to the pandemic, however, it is essential that he looks at the wider implications of any major shift in taxation.
“While landlords, second homeowners and property investors may seem an easy target the outlook for the property market could be disastrous if a policy is introduced which makes the UK housing market out of bounds for investors.
“Property is always an easy target because, unlike many other assets, property can’t be hidden away and as CGT affects a relatively small part of the population it looks like an easy fix for the enormous debt accrued during the pandemic.”
One indirect consequence of a CGT hike, for example, could be that landlords and investors choose to defer sales plans and retain properties for much longer periods.
Alexander says: “The outcome, therefore, could be reduced revenues, fewer properties in the private rented sector, and an extremely disgruntled and disaffected group of landlords, investors, and second homeowners who feel betrayed simply because of their desire to invest in property.”
And he concludes: “After a period when the housing market has been experiencing something of a boom there is a very real danger that this could quickly be lost if there is a sudden rush to market by landlords, investors and homeowners offloading their properties due to current financial difficulties and future tax penalties.
“A sudden dip in the housing market at a time when it has been one of the more reassuring sectors of the last year, would have the double impact of depressing the finances of everyone who owns a home, whilst impacting the wider prospects for the economy which will take a hit if prices suddenly drop.
“The property market is largely driven by sentiment and sending the wrong message at a time when it is potentially fragile due to the ending of the stamp duty holiday could deliver double whammy which could throw all recent gains into reverse.”