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Surprise: Osborne’s budget is good for property investors!
June 22, 2010Article by Ray Withers
Property investors have been holding their breath and their nerves for several weeks now. A rise in Capital Gains Tax (CGT) was inevitable: it was built into the text of the coalition agreement between the Conservatives and Liberal Democrats and part of the Lib Dems’ manifesto on which they enthusiastically campaigned. Moreover, the ‘flipping’ of second homes by MPs – without either subtlety or discretion – had been the focus of populist wrath for some time. Chancellor George Osborne expressed a willingness, indeed a desire, to raise the levels to 40 or even 50%. So we knew that something was going to happen.
The picture that has emerged is more complex – and remarkably favourable to investors in general, and especially our typical client base at Property Frontiers. From midnight tonight (!), the rate of CGT will stay exactly the same for middle income earners, i.e. those who earn less than the upper limit of the income tax rate band. For higher earners, it will rise to 28%. This is a modest increase compared with projections and it removes the threat of panic selling. And the change is simple and easy to grasp, with no bureaucratic and complex tapering arrangements. Even the higher income rate is better than several years ago under Labour.
Most important of all is the decision to implement the change from midnight tonight. This is genuinely good news because it prevents any sudden disposal of assets (in the UK or abroad) with the accompanying bad consequences for the housing and rental markets. We must spare a thought for those who have already sold up, fearing a steeper rise. But most investors have sensibly adopted a ‘wait and see’ approach, holding on to their properties and carefully planning their future.
The CGT allowance of £10,100 per person remains the same for this year and will rise in future years in line with inflation. And we have just heard that the tax concessions for owners of UK holiday let homes, abolished by Labour last year, have been reinstated in the Coalition’s first budget.
A lot of our words yesterday still hold true. From the standpoint of many of our clients, economic conditions in the UK remain difficult, and the allure of better climes remain strong. Yet those who are committed to staying in the UK do not face a regime as punitive as many of s feared. And those who are planning their exit strategy can do so with less urgency.
Hence our cautiously optimistic assessment: Osborne’s budget does not harm the property sector and even offers us new opportunities!