Tuesday, Jun 22, 2010
Not so progressive after all
FT: Property investors welcome capital gains tax move
Property investors have welcomed the emergency Budget's rise in Capital Gains Tax to just 28%, from 18%. There had been fears that CGT would rise to 40 or even 50%. The immediate nature of the rise was also praised, given fears that property investors would unload their portfolios onto the market if the rise was delayed. Jonathan Thompson of KPMG said “This is about as good as it could have been." But Liz Pearce of the British Property Federation, stated "Buy-to-let investors, who have propped up the housing market over the last 20 years, will suffer and this could hit the future supply of rented housing.”
Posted by little professor @ 03:32 PM (3564 views) Add Comment
61 Comments
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1. jack c said...
For those that do not have FT subscription
The immediate rise in capital gains tax to 28 per cent in the emergency Budget was welcomed by property owners and investors, who had feared a staggered and sharper jump that could have led to a flood of homes on the market.
With rumours of a rise of up to 40 per cent, most property owners with capital gains tax liabilities were on Tuesday relieved that the tax had been increased only to 28 per cent, from 18 per cent.
Property investors also welcomed the immediate application of the tax change, which will go into effect from midnight on Tuesday, given fears that second home owners would quickly sell properties prior to any forward date implementation.
There had already been signs of increased sales in the housing market, in particular homes costing less than £150,000, the price bracket favoured by buy-to-let investors, who stood to lose the most by the increase in CGT.
Jonathan Thompson, a partner at KPMG, said: “This is about as good as it could have been given the worries about a higher rate of capital gains tax and the threat of movement on stamp duty.”
Clare Hartnell, head of property at Grant Thornton, agreed that there was little for the property sector to complain about given the threat of higher increases. Furnished holiday homes, she added, would remain under the rules for business assets and so be taxed at 10 per cent.
Liam Bailey, of Knight Frank, said that the concern had been that if the Budget had been badly handled – with an announcement of a new higher rate of CGT from next April – a flood of stock would have hit the market just as buyer interest was weakening.
Leading housebuilders echoed the sentiment, with one saying there had been “no immediate horror stories” in the Budget.
Pete Redfern, chief executive of Taylor Wimpey, a top-five housebuilder, said that the quick implementation of the higher CGT rate would protect prices for new homes in the short term.
“Would we rather not see increase in capital gains tax? Yes. But it has been implemented fast, which means there is less likely to be a rush to sell by buy-to-let investors,” Mr Redfern said.
However, housebuilders said they were expecting more clarity about the level of cuts to affordable housing grants.
There has already been an increase in sellers and a slowdown in buyers following price rises in the market and the abolition of Hips.
A few estate agents, mainly in prime London, reported a sales rush ahead of Budget day to avoid an increase in the tax. More said that there had been a greater move by owners to transfer property where there was a tax liability to corporate entities with lower capital gains tax liabilities.
There was still some concern about the effect of the rise on the housing market, however. Miles Shipside, commercial director of Rightmove, the property website, warned that the increases could permanently dampen the enthusiasm of the investor market and lead to an increase in rental prices.
“Investor buyers have helped replace deposit-strapped first-time buyers and this rise in capital gains tax removes an element of support for the all-important bottom end of the housing market. However, a drop in prices could help rekindle their interest following this capital gains tax setback.”
Liz Peace, chief executive of the British Property Federation, said: “Simplifying the [tax] rise to 28 per cent by not tinkering with taper or indexation relief shows a welcome desire to keep things simple.
“Thankfully, the rate has not been brought into line with higher rate tax levels, but this is something that many will not be happy about.
“Particularly, buy-to-let investors, who have propped up the housing market over the last 20 years, will suffer and this could hit the future supply of rented housing.”
2. debtfree said...
Basically, this was the last chance of any significant drop in prices.
Sterling has been devalued and that was the drop
Bet you all wish you had bought a place now instead of listening to this website for so many years ?
biggest mistake ever !
3. mystie010 said...
Yep debtfree, I wish I had bought earlier - and so the support for high prices goes on. Guess it's time to bite the bullet then. I have given up hoping for a drop in prices and I now believe that it just simply isn't going to happen. Well it's off to sling a mortgage round my neck for the next 25 years or when I drop down dead whichever comes earlier :-(
4. Simon said...
“Particularly, buy-to-let investors, who have propped up the housing market over the last 20 years, will suffer and this could hit the future supply of rented housing.”
Think the stupid bitch means puffed up , not propped up .
5. Wageslavex14 said...
This has been a bit of a sideshow.
Most BTL properties were bought pre-2007, when CGT on housing was at 40%. It didn't discourage BTL then, and it probably wouldn't have discouraged BTL if reinstated in this budget. The key determinant of BTL purchases is the availability of credit at reasonable rates, and not the tax rates payable.
BTL rates are still very high, the supply of credit is low, and the likelihood of capital appreciation over the next few years is now pretty low, so BTL isn't likely to get much of a boost from this.
I'm still not rushing to buy. It'll be at least next year before I do, and more likely 2012, despite being in a position to buy now.
6. mrflibble said...
Very crafty that the CGT increase is effective from today (nobody can ditch their illiquid assets), equally crafty that the VAT increase will come in just after the Christmas spending spurge. It feels like this new government is kicking the same old can down the same old road in the hope some growth will materialise from somewhere. Meanwhile the country is being hobbled with housing at 6x income.
It's looking like a long painful slog gents. By the time prices are down to reasonable levels we could have settled in another country, oh sh-t, we cannot, thanks to our currency taking the hpc instead of housing then emigration isn't quite the deal it once was!
7. mystie010 said...
@ mrflibble I don't know about you but I've given up I am admitting defeat! Looking back I'm now thinking that it was probably naiive of me to think that when so much money was at stake, the house of cards would ever have been left to crash. There are simply too many vested interests. At least I've still got a fairly decent deposit but its the younger generation I feel sorry for. However I'm probably going to throw in the towel and buy later this year. What else can I say other than I'm truly gutted!
8. rumble said...
Are we saying the world's all fixed up?
"illusion the"
9. mystie010 said...
@ rumble I guess it pretty much is - unless you are a homeowner in which case everything in the garden is just rosy.
10. mystie010 said...
All I need now is a dose of smugdog rubbing my nose in it :-(
Actually where is smuggy these days I thought he would have been having a right old laugh at our expense.
11. Steaky said...
I agree rumble; there are so many other factors at play.
I've shorted the housing market and only yesterday the price index on IG dropped again (4 times in a row now).
I for one won't be throwing my money away quite yet.
12. mark wadsworth said...
Simon beat me to it. She means "puffed up" not "propped up". But it's their problem now, they are left holding the baby and I warmly recommend that everybody else - and yes that measn you, Mystie010 - keeps renting for the time being.
Don't break ranks now, you'll just spoil it for the rest of us (and yourself, of course)!
13. jack c said...
mystie010 - have a look at the post below (mortgagestrategy article) - greenbay is back on board !!
14. Katalan1 said...
I appreciate that CGT hasn't quite gone the way we hoped, but surely the ballpark 25% cuts across gov't departments that George Osborne mentioned are going to affect employment figures and therefore subsequently house prices? Interest rates are also still likely to rise, which alongside lower levels of disposable income as a result of the budget, are going to put pressure on mortgage repayments. CGT is/was just part of the wider picture, not the be all and end all. Just my opinion anyway.
15. str 2007 said...
My initial thoughts about the budget are good. The deficit is being addressed. And frankly I don't think there were any greatsurprises and anything that is going to set people back much.
Surprised they didn't do more to be honest.
Fact is though there will be cut backs and stricter lending criteria in place soon. I'm really not sure the housing market can move on far from here.
I'd like to have seen some reductions in commercial property tax to help businesses get started. EG I was looking at a 2000sq ft retail premises the other day. Council Tax bill element was nearly £20k per annum. That to me seems outrageous for maybe collecting a bit more rubbish.
Don't assume no HPC from here though. Although some of the ridiculous claims of 70% falls that were bandied about by a few on here were definately not going to happen and won't. (Unless you measure in Gold - but they never mentioned that at the time.
Still wouldn't be surprised to see prices gently fall 20% over the next 2-3 years from here though.
16. Albino United said...
@mystie
No need to throw in the towel yet. I suggest that you sleep on it and everything will look better in the morning. Ok, so HP won't suddenly tank but they were never going to. These things always unwind slowly over a number of years. CGT is up, LHA down, VAT (inflation then IR) up, unemployment up, public (and private) sector pay down.......................... There's only one way for prices to go.
Be strong. Keep the faith. Peace.
17. rumble said...
Chinese exports, vat, cgt, unemployment, foreclosures, insolvencies, population size, eu banks...?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7841961/Gold-reclaims-its-currency-status-as-the-global-system-unravels.html
"cuddlier said"
18. simon68 said...
Never mind!
It’s now difficult to get mortgage from banks and liquidity has drained out.
BTLs better hang on their property investments forever. I am happy for rent for life in UK since I’ve got properties in Hong Kong & Singapore. I can sell off my properties in HK & Sing and complete the deal in 3 months where UK properties advertisements are wall paper lingering in window for ages.
19. mrflibble said...
6. mystie010...
Well I sold at the bottom apparently so what do I know. To be honest I'd be quite happy if I could get 6% gross on my savings as I could stay out of ownership and cover my rent with the interest. Although for that to happen some stability in the currency would be required.
Like you I feel for the younger generation. I honestly believed they would be given a bite at the cherry, but it would appear not. I'm not sure where this is all heading any more. Asking a new graduate to leave university with £20k of debt and then take on a stressful career job to NOT be able to afford a shoebox to live in isn't my idea of a rewarding society. At the minute the average house requires too graduates to afford it. At some point people may well start saying bollax to this. Mentally I've been at this point for 4 years.
20. mystie010 said...
@ jack c - Yep I've just seen Greenbay is back and I've left a comment, although I think there is something decidedly strange about a bloke who has to shout about the size of his wad - maybe it is to compensate for the shortages in er... other areas if you know what I mean (lol)
21. mystie010 said...
@ mrflibble Yes I've been there for six years, sadly I could have had a large chunk of mortgage paid off had I bought straight away and I am trying to keep the faith but sadly when things like this rubbish budget happen it is so hard. Hey if we can't beat em - why don't we join em - anyone fancy a joint venture into second home ownership for holiday lets in Devon? I'm serious?
22. rumble said...
Mystie, "a joint venture into second home ownership" - jumping the gun - you're not a first home owner. ;)
"democrat warp"
23. Richb said...
"Basically, this was the last chance of any significant drop in prices.
Sterling has been devalued and that was the drop
Bet you all wish you had bought a place now instead of listening to this website for so many years ?
biggest mistake ever !"
I'm a die-hard property bear, though I was actually looking at buying a place earlier this year as a BTL opportunity. Given the changes in LHA announced today, though, which would cut potential rent in half, the numbers no longer make any sense. I'm sure there are quite a few BTL landlords out there, especially in or near London, who had based their business case on LHA who are about to be in a whole world of pain.
24. mark wadsworth said...
STR2007 @ 12, I take it you were looking for business premises to rent? If the Business Rates are £20,000 then I'd guess that the rent is £50,000. So the whole shebang costs you £70,000 - that is the most you (or any of your competitors would be prepared to pay).
So what would happen if they cut the BR to £10,000? Simples - the landlord would put the rent up to £60,000. You'd not be any better off. Taxes on property or land values do not affect the tenant.
As a thought experiment, imagine you were thinking about renting from Crown Estates (part of the state), if you move in, the state (qua landlord) gets £50,000 and qua tax authority gets £20,000. Could you care less what the split is?
25. gone-to-colombia said...
We might hve hoped that CGT had been put up more, but it's still going up.
I see no reason why property prices should not continue to fall.
This budget added to the spending cuts to come will ensure that there will be a lower demand, and less money with which to buy a growing stock of unsold property.
26. str 2007 said...
Mr Fibble
Vodafone shares would give you a dividend of about 6% plus the chance of some capital gain. A fairly safe share in troubled times as people aren't likely to cut back much on their mobiles.
Also if you're fairly fed up you could get a 4 or 5 bed house in 1/2 and acre of land & a small yacht for the price aof a 3 bed semi here.
Only snag is you'd need to move to Brittany in France. But if you think you could make a living there. And you'd have your yacht to sale to the Channel Islands at weekends and back to the Solent for your annual visit to friends.
Just a thought.
Mark Wadsworth
Actually the rent's less than that £32k, but combined seems like a good way of shifting alot of money for a new business. Pointtaken re: % of rates to who.
It just feels like it's crippling to take on any sort of property in this country be it residential or commercial/retail. And it's this I feel that's stopping alot of businesses getting started.
27. wanderinman said...
The Telegraph's Ian Cowie has some other details on the CGT increase:
http://blogs.telegraph.co.uk/finance/ianmcowie/100006555/budget-2010-cgt-shock-for-basic-rate-taxpayers/
"Contrary to the impression given by the Chancellor, many owners of second homes and buy to let landlords who pay basic rate income tax will be caught by the new higher rate of 28 per cent capital gains tax (CGT). Frank Nash of accountants Blick Rothenberg told me:
"Treasury documents make it clear that an individual’s gains will be added to their income when assessing whether they remain basic rate taxpayers for the purposes of the new higher rate of CGT. So, anyone whose income and gains exceed £43,875 will be liable to pay 28 per cent rather than 18 per cent CGT on gains made after midnight tonight." "
And no index or taper relief.
28. str 2007 said...
gone to columbia
Yes I'm inclined to agree.
They'll be a feel good factor if we win the World Cup (some chance, my monies on out tomorrow) and another brief pick up with the feel good of the Olympics in a couple of years, but that's all I see.
29. gone-to-colombia said...
str 2007
It takes time to turn around the juggernaut of the public mindset. By a progression of touches on the tiller this is happening.
I suspect that time will reveal a kind of slow motion crash.
The World Cup, they go crazy about it here, Colombia never made it to South Africa, so they support Brazil instead. In fact, any South American team except Argentina, a country loathed for their perceived cocksure arrogance.
I try to ignore the entire event.
30. Frank said...
2, debt free, few that was close, i thogt we were going to have a major tax hike, and the cgt to go up to near 40%, o well near 30% is much better, or is it ? the autum will tell, and also next year! very clever the chancelor has been to impose taxes but to make them look not too bad.
31. tenyearstogetmymoneyback said...
A couple of comments on this thread.
mrflibble said "It's looking like a long painful slog gents." That is what I was thinking. I don't think there is much chance now of a significant crash. However, you also have to ask what are the chances of them going up. Not much in my opinion, and if they do start the Government will actively try to supress this.
As for buying a house, given that I now have a 1 in 6 chance of being made redundant it now seem like a worse idea than it did at the beginning of the year, especially if I have to move.
Back to the budget the thing that caused the most comments at work was the £400 cap a week on housing benefit.
How will the people with £1 million BTLs cope now the Government won't pay the tennants rent.
32. quiet guy said...
@debtfree
"biggest mistake ever !"
Not buying gold when Brown sold off half our reserves was a bigger mistake from a financial point of view. I guess we're all wise in hindsight.
Now what will happen to house prices next?
33. Stu531 said...
Look, end of the day - isn't this just likely to mean that landlords are less likely to sell, but would-be-landlords are less likely to buy?
34. Terry Knight said...
I guess my question, what is it the liberals actually stand for? defeated everyone. It was a serious question though - the point being, although they are obviously if uneasily enjoying their first and probably last taste of power for seventy years, how long can they keep propping up this minority Tory government? Their members must be despondent to see so many principles so casually abandoned, not least capital gains tax. I say keep the faith - last time the Tories took power they doubled VAT in six weeks, precipitating a far worse recession than this one, but the next, coming soon, will be worse yet. It was revealing to see the Blessed Vince trying to sustain a grin while Harriet hammered the wedge into the liberaltory crack. He does serious so much better. I wonder if the first victim of Dave's promise to let us chuck out a sitting MP will be a liberal.
35. hpwatcher said...
Basically, this was the last chance of any significant drop in prices.
Not at all; the real government cuts are still yet to come. It now seems they will be about 25%....then we will finally start to see more realistic drops in house prices.
36. debtfree said...
@26 quiet quy,
Who knows hey, I'm done with guessing. Still reluctant to swap gold for a deposit though - good luck to you.
@27 hpwatcher,
"..then we will finally start to see more realistic drops in house prices"
Like a stuck record... how many times have we all said that ?
All the best
37. gone-to-colombia said...
@28 - 'Like a stuck record... how many times have we all said that ?'
Never when a government had just put up taxes and was about to cut public spending by 25%.
38. debtfree said...
@29 gone-to-colombia
You trying to find a reason or an explanation why they must fall ? - we've been there many a times with NO success.
With all this financial turmoil, house prices in the UK buckled and bounced back with ease, prices will be held, just like the banks.
This is the last thing I would want to be saying to you, but that is the reality of it when you stand back and look at how manipulated everything is. And that is something you cannot reason with.
39. Nikhps said...
Well Ive being avidly following this website for a number of years now and like everyone else Ive kept the faith and stayed out of the property market. Alas though this budget is the last nail in the coffin to keep me hanging on any longer. Myself and my partner have built up a decent deposit and think we're gonna take the plunge - lifes just too short to be planning on waiting another 5 years. In actual fact the area of leeds Im looking at prices dont seem to have bounced very far at all, if at all so in that respect I dont feel as bad about doing this.
Anyway good luck everyone. Over and out.
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41. hpwatcher said...
Like a stuck record... how many times have we all said that ?
We haven't actually been in this situation before, with such large public sector cuts.
I was wondering what your problem is? You call yourself debtfree, but talk as if you own a house. Exactly what is your position - apart from wanting to p*ss on everyone and gloat?
42. quiet guy said...
@hpwatcher
I think you've misread debtfree's position. See comment 2 at
http://www.housepricecrash.co.uk/newsblog/2009/10/blog-printy-printy-25818.php
Personally, I still think that there is a big drop in house prices to come but we have been wofeully bad at predicting when it will happen so far. A lot of bearish voices on property seem to have expected a correction to have taken place by now and as debtfree has correctly pointed out, it hasn't happened (yet.)
43. debtfree said...
@31
I haven't got a problem, just an opinion that really hit a sensitive nerve of yours.
no home, no debt and I'm not trying to p1ss on anyone.
44. Deadjune said...
Ever thought that a "bear" is in sense a negative "bull"?
What I mean, is many people on this site are extremely
optimistic about house prices crashing, in a bullish, rush and emotional way.
I think people like debtfree are the true bears, that is
the true pessimists from HPC aspect.
I started feeling like that recently, I think there is no hope in this shit land.
I mean see what happened the last one year. This is not a dead cat bounce
is a cat that got back from the dead with vengeance, a Zombie panther that
will eat this and the next two generations.
I wish there was another English speaking country that I could move to, Canada maybe?
45. techieman said...
debtfree - i disagree. Everything IS now in place for falls. However, all that is now required is some momentum. You will get that after 2 monthly falls in the indices. So in short be bullish on being bearish when u see those falls. (>-0.1%)
46. titaniccaptain said...
Captcha "for halcyon" lol
OK you miserable lot......ask yourselves this simple question....what proportion of second home owners would you say fall into the higher tax bracket?
I would say a good portion of them.
"But its only 10% increase" I hear you cry.
So what...house prices are still falling.....and this won't help..
"But but but the Haliwide and Rics say house prices are going up...what are you talking about? TC you are a peasant" you say...
Yes I am a peasant but I am a peasant who has been around 4 different houses today all in good areas where prices are falling like nobodies business.....offer 20k less....they bite your hand off right up to the elbow.
That is not a sign of house price increases.
Most sales in good areas are cash deals......anything under 150k has a chance of someone getting a mortgage.....just about and this is what every estate agent I meet across Wales is telling me.
Anyone who is following the housing market outside the south east of England is going to see a similar trend.
So you orrrible lot...
Think about this......
How many cash investors will want to dip into the housing market this time next year?
Not many I suspect but there are many out there who are fooled by the rubbish and yes I mean lies and rubbish published by the Haliwide and Rics who will still dip in but that's all it takes to fudge a figure.
A few high end cash deals in a flight from cash will distort the real picture of the housing market.
When The Haliwide and Rics leave the south east out of the picture I will believe (OK I still wont believe them) what they have to say on the housing market.
I believe the hard facts on the ground....and those facts are simple......where ever I go estate agents say to me "The vendors are negotiable"......
I am someone who is putting his money where his mouth is by selling a piece of paradise for 50k less than what the estate agent says my house is worth......because it is no longer worth 50k more.
Can I find anything as nice for the same price?
Not yet no.......
But I will......when the prices go down even further.
What mechanisms are there to make house prices (Forgetting the south east which is a country in its own right) increase?
None.
What mechanisms are currently at work that will make house prices fall?
.............................Public sector cuts leading to higher unemployment will do it quite nicely.
Do I regret not buying earlier?
No.
House prices ARE falling......FACT.
just not in the south east land of make believe.
47. titaniccaptain said...
Oh yes and since when did we allow mortgage approvals to give us a true idea of where the housing market is heading?
What a load of old Cr@p
48. titaniccaptain said...
And there's more.......
Why did anyone think that capital gains tax going to where it was back in 2007 was going to crash the market?
Rant over.....
49. titaniccaptain said...
Oh and by the way I was also hoping CGT would go up to 50% in a years time.....but hey ho.....it didn't.
Now then lets see how many signs there are of new AFFORDABLE and SERVICEABLE mortgage products are coming onto the market........lets see....hmmmm.
NONE.
How many mortgage companies like virgin will cap at around 70 something percent LTV........
More and more I think.
How willing will banks (with high exposure to the Spanish, Greek and Portuguese property markets) be to lend?
Not very.....right I need sleep.
50. jack c said...
techieman @ Tuesday, June 22, 2010 10:34PM - I'll be watching the market with ever closer scrutiny - fair play as you called the dead cat bounce (if thats the correct term) last time and I for one didnt think for a minute that the market would swing back up to 2007 levels (or thereabouts). Lets see if we get that momentum you refer to and falls commence.
BTW your mate greenbay (assuming it isnt an imposter is back on the thread below)
51. hpwatcher said...
just an opinion that really hit a sensitive nerve of yours.
Not at all. I'm pleased wih the decisions I have made - and feel them to be right. Moreover, I'm simply not prepared to buy a house when prices are at an all time high. In terms of spending - the government & BOE are now exhausted - they now need austerity.
52. techieman said...
jack c..... "BTW your mate greenbay (assuming it isnt an imposter is back on the thread below)"
Yes i also said we would get the bulls on here taking the p1ss..
So in summary... Good! - The ultimate contrarian indicator :-).
C'mon England!
53. Mike Peters said...
I can see prices slowing up further as the year goes on. It's amazing how many new properties are on the market in my area (Cheshire), partially driven by the concerns over the rise in CGT no doubt. But the fact that there are so many on the market at once, couples with the dearth of mortgage options around, must mean a drop in prices.
Make an offer, probably 50% of people are up for a deal.
MP
54. simon68 said...
UK is having a Zombie Housing Market. UK Government is artificially pressing down the interest rate to prop up properties price, and provide housing benefits to support BTLs properties. It also provide Credit Guarantee Scheme and Special Liquidity Scheme to banks and building society to enable mortgage lending to properties buyers. In addition to this, there are several scheme including Mortgage Rescue Scheme, Homeowners Mortgage Scheme and Support for Mortgage Interest Scheme to prevent re-possession of houses from delinquent mortgagees
55. simon68 said...
If taking away all government interventions and supports, the current properties price worth no more than 1/3 of its current value.
56. hpwatcher said...
UK is having a Zombie Housing Market. UK Government is artificially pressing down the interest rate to prop up properties price, and provide housing benefits to support BTLs properties.
I agree with that - to a degree. The key thing is how long can UK government afford to do this? Inflation, which will force the hand, is going to shoot up with the VAT increase.
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58. smugdog said...
Smugdog smiles
59. techieman said...
"Yes i also said we would get the bulls on here taking the p1ss.."
hi Smuggy!
60. Hanger On said...
So - how long do we wait? I've been renting for around 3 years now and starting to get twitchy....
61. This comment has been removed as it was found to be in breach of our Blog Policies.