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Budget sees CGT rise to 28%

Top rate taxpayers  will be charged 28% Capital Gains Tax from midnight tonight while VAT is due to rise to 20% in the New Year, under the coalition government’s ‘austerity budget’, declared today. The new rules didn’t come as too much of a shock – proposals for CGT were originally much higher, putting the potential top rate as high as 50%.

Liam Bailey head of residential research at Knight Frank commented: ‘CGT was the main story, as the proposed increase was heavily trailed in advance. In reality the rise to 28% for high-rate tax payers is a non-issue for the housing market.

‘The rise is coming into play overnight – so there will be no sudden sell-off of second homes or investment properties. The new rate takes us back to a similar rate to where we were under the pre-2008 rules, when taper relief was able to reduce a 40% headline rate of CGT to 24%. With higher-rate CGT at 28% the argument for property investment still looks strong, and capital gains still compare very favourably with income tax at 40%.

‘The other issue of note is that with strong GDP growth forecasts for 2011 and 2012 – the inference is that the Bank of England will be encouraged to maintain a very loose monetary policy for longer than recently expected, suggesting interest rates at current levels could be maintained for longer. This would underpin house prices and also contribute to ongoing low supply in the market,’ Mr Bailey concluded.

David Adams, Chesterton Humberts‘ head of Residential, added: ‘This is a brilliant budget for UK Inc.  Prime property in London and the South East and South West should see now see stable prices while the effect on northern areas with high public sector employment is less rosy.  Some asking prices will need to be reduced in the south, but this is simply because of agent overpricing during the first half of the year, when property was in short supply.  

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‘It will be interesting to see how long it takes people to realise that the cost of renovating and furnishing a property will be increasing through VAT and that a considerable savings could be made by moving and refurbishing before the end of December.’

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