Buy, Sell or Hold

“Moves by the Coalition to raise Capital Gains Tax could decimate the buy-to-let market, with fears of a fire sale as landlords rush to dispose of their properties before the hike”. So say the doom and gloom merchants.
However, it is true the new Government has announced changes to CGT. It is likely to be charged at the same rate that people pay their normal income tax – ie, 20%, 40% or 50%. It means that in most cases, CGT will be paid at 40% rather than the current 18%. The hike is likely to kick in next April.
Commentators in the market are claiming the steep rise would chiefly hit landlords selling buy-to-let properties and people disposing of second homes. And, allegedly, estate agents are already reporting instructions from landlords “desperate” to sell up ahead of the “huge tax hike”, and are warning new investors will stay out of the property market. But what are the facts?
CGT has only been at the historically low rate of 18% since 6th April 2008. Prior to that it was at a variable rate of 20 or 40% with most people paying 40% on the net gain after allowances. (Remarkably similar to what’s being proposed)

The Buy to Let market was at its peak between 1996 and 2006. It has been static at best and in decline at worst since the global financial meltdown first reared its ugly head in late 2006.

Property Investment is not (and never has been) a game played over the short term. It has always been optimised over a longer term and measuring success by the total yield achieved (i.e. both income and capital gains).

The fundamentals of property are the same as ever they were; namely not enough houses to go round and would be first time buyers unable to get onto the housing ladder.

The demand for rental property has continued to grow year on year for at least the last 15 years and given the fundamentals is likely to continue to do so.

So there are only 3 investment decisions a property investor can make; Buy, Sell or Hold. Trouble is an estate agent doesn’t make any money by advocating a decision to Hold. Trouble is a letting agent does, so who on earth do you believe?

Richard & Merril Cleal, Martin & Co

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