Let’s not panic about CGT changes.

Plans to revise the way capital gains are levied may well impact on some second home owners and those who bought ‘buy-to-let’ properties but I have little sympathy for those who simply jumped on a passing bandwagon.

Clarification of what the LibCon government proposes should come in the emergency Budget on 22nd June but already there are cries of ‘foul’! Are second home owners and others like them who have invested in the property market really being unfairly picked upon? The Daily Telegraph has started a campaign against the proposals and ‘stake-holder groups’ (vested interest groups) are lobbying but could the proposed changes actually improve the housing market for the majority by bring down prices?

I appreciate that it may be unfashionable to say so but I have little sympathy with those who are whinging about the changes being proposed. The Prime Minister made his expectations crystal clear in his very first speech made in Downing Street having returned from the Palace on May 11th. He said “I want to help build a more responsible society here in Britain – one where we don’t just ask what are my entitlements but what are my responsibilities. One where we don’t just ask what am I owed but more what can I give and a guide for that society that those who can should and those who can’t we shall always help.”.
I would go even further and encourage the Treasury to investigate replacing Stamp Duty Land Tax with CGT on all residential sales!

We find ourselves way out of our depth when it comes to the mire left by the last Government. Like the medium we are swimming in the medicine will be unpleasant. Hiding the scale of the problem as Labour did for the past 12 years only delays the inevitable. If people want to whine about a tax levied on money made simply while you own a house then they have misunderstood the lessons of the past and the new view of the future. Capital growth may have served some well but income or ‘yield’ should be more important to those who invest in property – capital gain if there is any should be seen as it always used to be – as a bonus!

We will have to await the detail of the Governments plans for Capital Gains Tax when George Osborne delivers his first Budget on 22nd June. Although Vince Cable has dismissed talk of taper relief it seems inconceivable that what looks to be a return to the pre-1997 CGT landscape wouldn’t also have some regard to those long-term investors who could be unfairly disadvantaged by this proposal.

We can also expect confirmation that this will take effect in April next year. Since most investors take a long-term view I suspect that other than squealing about what is proposed the market is unlikely to see an avalanche of property for sale. Tax planners and property experts are almost certain to come up with solutions to those who are seriously disadvantaged by the new rules. More interest in Reits (Real Estate Investment Trusts) perhaps…

One result we can expect for those considering investing in residential property is an improvement in yields – currently at derisory levels of close to 3-5% in many areas. Some new landlords may of course feel the pinch if capital values were to fall but since we don’t expect to see growth in rents this is the only other way that yields can get back to some sort of norm and reflect the true challenges of property investment.

We have some serious issues to face and everyone is going to have to do their bit. It simply isn’t good enough for people who may have been astute enough or were just plain lucky to have made money inadvertently thanks to a rising market to seek to exclude themselves. I expect those who have helped create value in properties to be treated more generously to encourage them to continue to do so but this should not extend to journeymen who have just ridden the wave.