Central London’s property market is experiencing a rise in the number of second homes coming onto the market as investors rush to sell ahead of a potential capital gains tax rate hike announcement next month, according to research by Cluttons.
CGT currently stands at 18 per cent but there are concerns that it might be altered Gordon Brown’s March Budget this year.
“The Budget will be more important for the property market than the election. Many are concerned about a possible rise in CGT – particularly investors and those with second homes in the form of city pieds-a-terre who are looking to sell,” said James Hyman, partner for Residential Sales at Cluttons.
A high proportion of properties in Central London would be impacted if the government decides to raise CGT. Jonathan Hewlett, a director at Savills, estimated that around 60 per cent of the properties in Central London are second homes or buy-to-let investments, with an average value of £2.5m. “Sellers are nervous, but as long as they transact within this tax year they can avoid the potential CGT change.” He said.
However a flurry of selling would put further downward pressure on Central London’s property values. Government changes to tax rules aimed at reducing the deficit have already taken a toll on the city’s prime property market as they have limited top earners’ ability to spend.
With effect from April, anyone earning more than £100,000 will see their personal tax allowances reduced, and those with an income of more than £150,000 will be taxed at the rate of 50 per cent. Individual bonuses paid to bank workers before April were also subject to a 50 per cent levy and further income taxes.
“The previously announced changes to income tax bands and banks bonuses will already have severe repercussions for the Central London property market as liquidity is greatly reduced. A hike in CGT on top of this could have a serious impact on property values,” said Hyman.