Property: Housing recovery will be ruined by tax

By Sarah O'Grady
Posted: 2010/06/14

RAISING capital gains tax on homes will devastate the "entire housing ­market", the boss of Britain's largest estate agency warned yesterday.

Prices will dive in the housing market as landlords flood the market with properties, and the private rented sector will collapse if the coalition government presses ahead with plans to raise CGT from its current level of 18 per cent to the 40 or 50 per cent predicted.

The number of buyers will tumble and rents will soar out of reach of ­everyone but the wealthiest tenants, according to Simon Embley, chief executive of LSL, which owns Your Move, the largest single estate agency chain in the UK.

Mr Embley said: "A capital gains tax hike is not just a step in the wrong direction - it is a leap.

"Ordinary people who have trusted bricks and mortar rather than the stock market may see their nest egg hit hard. Thousands more may be deterred from buying property in their name for their children.

"When the housing market's recovery is still fragile, increasing CGT means a large proportion of demand could disappear and prices could fall. A further drop in house prices could push more homeowners into negative equity and, alongside rising unemployment, trigger a significant rise in repossessions."

Most landlords are middle-income, hardworking families, often relying on a second home to provide a pension.

According to a survey by Your Move, which has 584 branches across the UK, nine out of 10 landlords oppose plans to raise CGT; 71 per cent said an increase would make them reconsider future property investment and 26 per would consider selling before any higher rate came in.

Nigel Lewis, an analyst at FindaProperty.com, said: "The proposed CGT increase could eventually ­strangle the property market."

Although profitability is determined by both rental income and capital gains, a quarter of landlords said they consider only the latter when buying a property.

In the past 20 years, the average house price has risen from £44,880 to £168,202. Someone who bought such a property in 1988 would face a £45,288 bill if they sold this year if CGT is increased to 40 per cent in the emergency budget on June 22.

Mr Embley called for the reintroduction of taper relief - abolished by Labour - under which the amount of tax payable falls if a property is held for several years.

He said: "The private rental sector is vital to housing the UK's growing ­population. There is a chronic shortage of residential housing and this is going to get worse. Social housing will not cover the shortfall."

The CGT increase is to help pay for Lib Dem plans to lift the income tax threshold to £10,000, taking millions out of the tax net altogether.

But there has been mounting concern from Tory MPs, mortgage lenders, business leaders and savers about the impact of a blanket rise.