How will the new government effect the buy to let sector?

Landlord Expert
By Landlord Expert May 12, 2010 20:03

ncoming chancellor George Osborne has just 50 days to present an emergency budget in which he plans to raise capital gains tax from 18% to 40% (or possibly 50%) on non-business assets, news that may send buy-to-let investors into panic mode.


Already the property market is alive with rumours that over the next few weeks any buy-to-let investor who was considering selling will bring forward that decision and offload their property as soon as they can. The result? A flood of two-bed apartments on to an already flattening market could spark a rapid downward price spiral.


To many this will be hugely welcome. The shock is that it is a Tory chancellor who is prepared to do it.


Ronnie Ludwig, partner at chartered accountants Saffery Champness, says: "In advance of these changes being formalised we are likely to see people scramble to take gains, prompting a rush of sales of second homes and share portfolios."


Over at Assetz, a property investment firm that is the cheerleader-in-chief of the buy-to-let sector, chief executive Stuart Law is bewildered: "The new coalition government's proposed capital gains tax increase on non-business assets is likely to have a negative impact on property investment in the UK."


Inevitably he is calling for the rate to be kept at 18%. It's a weird morning when property speculators hark back to the glory days of a Labour government.


The simple arithmetic means it will make sense for a buy-to-letter to cut asking prices to shift a property rather than face a post-budget tax hike. For example, the sale of a £200,000 property originally bought for £100,000 with a 40% tax bill will net its owner £160,000 (after a 40% tax on the £100,000 gain). Cut the price to £180,000, sell it while tax is still 18% and the owner will pick up a net £165,600. So get prepared for a quick sell-off. And if you're a buyer you might want to hold back on any offer you are thinking of making.


The timing is exquisite. Mortgage lender Paragon, which was delivered a near knock-out blow by the credit crunch, is expected to restart volume lending in the buy-to-let market from next week. Over the past week other lenders have begun offering more attractive rates to property speculators, and reduced the size of required deposits.


That said, it is unlikely that Osborne will want to be author of a property downturn that will, after all, mostly hit the people who voted him in. Maybe he will introduce some sort of transitional arrangement, perhaps a form of taper relief, to ensure a more orderly market. Maybe we will hear details as soon as this afternoon. If not, get ready for the Osborne/Cable sell-off.


Landlord Expert
By Landlord Expert May 12, 2010 20:03

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