Buy to let will remain a popular property investment option even if the rate of Capital Gains Tax (CGT) rises, according to independent lettings specialist Leaders.
CGT is currently set at a flat rate of 18 percent but there has been speculation this will be converged with Income Tax bands at 20, 40 or even 50 percent under the new Conservative/Lib Dem coalition.
Leaders’ MD Paul Weller said: “The potential of buy to let to provide an annual rental yield, as well as to provide capital gains in the long-term, has long appealed to a wide range of investors and will continue to appeal as an enduring asset class.
“We do not believe landlords will act hastily in the face of a possible CGT rise. They know that buying to let is a long-term investment, which brings with it a good chance of a capital gain - unlike many other assets classes - and after all, a taxed gain is better than no gain or a loss.”
Weller states that with rents rising, income earned through buy to let property is likely to be higher than that paid on cash made from selling an investment property, particularly as only the net proceeds after any CGT will be available to invest.
Weller also points out that CGT only dropped to the current rate of 18 percent in 2008; prior to that, when many landlords began investing, it was significantly higher.
And for any landlords considering whether they should cash in on their investment ahead of a potential CGT rise, Leaders advise caution.
“Firstly,” says Weller, “you need to consider where else you would put your money right now.
“Secondly, your rental property may have increased in rental value over the last few years; we have seen rents gradually rising and if you have been renting your property for some time and not had it valued recently you may be pleasantly surprised by the rent it can command in the current market.
“Thirdly, for anyone thinking about selling their property before any CGT rise and then re-investing in a new buy to let property, they need to bear in mind the dual transaction costs and stamp duty that may be payable on the new property.”
Whilst Leaders does not believe an increase in the CGT rate will cause sensible landlords to dismiss buy to let or cash in their chips, the firm is concerned about the short-term effect the uncertainty of a possible rise is having on the market.
Weller explained: “We have written to the Housing Minister ahead of the Emergency Budget on 22 June urging the Government to dispel the uncertainty over CGT and to give careful consideration to the UK’s private landlords.”
Weller points out that with demand outstripping supply, rents are rising and more people are finding rents increasingly unaffordable.
He concluded: “If CGT rates do rise then appropriate concessions, such as generous taper relief, that will support long-term investment are essential.”
