Autumn Budget: CGT changes could reverse the widening supply shortfall but any effect on house prices must be avoided

Ahead of the Autumn Budget, property developers and younger people wanting to get a foot on the housing ladder will be hoping that the Chancellor has their interests firmly in mind, by encouraging activity in the market and helping to make housing more affordable.

The Government has recently promised an end to austerity and while tax giveaways ahead of Brexit are unlikely, improving borrowing figures over the summer suggest that there could be some room for manoeuvre – particularly as tackling the housing crisis is high on the political agenda.

Rebecca Wilkinson, tax director at accountancy firm, Menzies LLP, said: “The property sector appears to have become an easy target for the Government to raise additional taxes, especially the recent increases in stamp duty land tax, which have hit SME developers hard. However, concerns about the housing crisis and the widening shortfall in supply suggests this can’t continue.

“To encourage more activity, the Chancellor could consider reducing the Capital Gains Tax (CGT) rate payable on profits from the sale of residential properties to 20 percent. Previous tax policies have discouraged people from buying more buy-to-let properties but there is little incentive for those with existing portfolios to sell, especially with a CGT rate of 28 percent.

“If the Government wants to encourage the sale of buy-to-let portfolios – particularly to first time buyers – then the CGT rate should be reduced to 20 percent or lower, combined with a requirement for it to be paid 30 days after the sale, rather than the following tax year. Whilst careful treatment would be required to avoid an unwanted increase in house prices, this measure could raise significant tax revenues – potentially a nice sum of additional funding for the NHS.”

The Government has been looking for other ways to tackle the problem of housing affordability. Boosting supply by encouraging the release of buy-to-let properties back into the open market could help to increase the supply of smaller, more affordable properties, but other measures are needed to tackle prices at the higher end of the market.

Rebecca Wilkinson adds: “To address the problem of house price inflation, particularly at the higher end of the market, the Government is in the process of introducing new non-resident capital gains tax (NRCGT) legislation. Due to be implemented from April 2019 this measure will target tax avoidance on indirect sales of UK residential and commercial property (e.g. a sale of shares in a property holding company) by non-residents who use overseas companies to hold the assets. Sales of shares in these companies can currently escape UK tax altogether, even though the value of the shares is linked to the capital growth of the underlying properties.

“To get a bigger slice of the tax revenues upfront, the Government has also recently announced plans to consult on introducing higher rates of stamp duty land tax (SDLT) for foreign buyers of UK property.”