RICS has called on the Government to introduce taper relief based on the length of time buy-to-let investments have been owned.
In the May 2010 RICS Housing Market Survey, an extra question was asked regarding the impact of CGT (capital gains tax) on investors. 72 percent of chartered surveyors who responded believed that a rise in CGT would deter investors from entering the private rented sector. Only 11 percent believed it would have no effect.
The analysis formed part of the RICS emergency budget submission which also includes key recommendations on public sector asset management and for the construction industry.
The responses were strong across all regions with 100 percent of surveyors in the West Midlands convinced that CGT would deter investors. This was followed by 82 percent in London and 72 percent in Wales. The area with the fewest “yes” responses was the North West with 58 percent.
RICS has also called on the Government to ensure that public sector asset cuts are strategic, sustainable and focused, avoiding a damaging “slash and burn” approach.
Key recommendations include:
- The Government must recognise the lead-in times for change in property, and focus on a strategic plan for major, sustainable running-cost savings, while using market intelligence to seize disposal opportunities
- Continue mapping the total public sector estate to identify and eradicate surplus properties and inefficient space usage, especially where collaboration between agencies will lead to greater efficiency
- Accelerate the development and recognition of asset management skills across government, with professional body and private sector help
In the construction sector RICS has called on the Government to:
- Take advantage of the high multiplier effect in the construction sector resulting from its low reliance on imported materials, extended and varied supply chain, and relatively high labour intensity as a vital engine of economic recovery and long term growth, by not reducing capital spending below the April 2010 budget figures
- Encourage private sector development finance to complement public sector capital spending by giving further direction to the banking sector
Commenting on Capital Gains Tax, Simon Rubinsohn, RICS chief economist said:
“Our research indicates that an increase in the rate of CGT is likely to deter new investors from entering the buy to let market, at a time of acute shortage of affordable accommodation. And while it is unlikely that there will be a near term glut of supply, a “fire sale” of properties by landlords looking to avoid a higher rate of CGT could if it were to materialize have a significant impact on the fragile improvement in sentiment in the residential sector.
"In addition, there could well be a drop in the supply of land for housing development. An increase in tax may discourage landowners from putting forward their land for development, which would reduce the number of homes built.
“One way of limiting the damage from lifting the CGT rate is to re-introduce some form of taper relief on income from certain types of asset. With taper relief in place the amount of CGT owed would depend on the length of time the asset has been owned.
"This would fit with the business model that many people in the private rented sector use, where they own a property for several years before selling it to realise some of the capital value.”
Commenting on public sector asset management Mark Goodwin, RICS director of external affairs said:
"The massive budget deficit has created a "burning platform" for strategic public sector asset management as a big part of the solution. The danger is that pressure for short term cuts and quick disposals will not achieve real value and will deplete the pool of professionals capable of delivering the best practice that is out there.
"RICS is urging the Government to: understand the lead-in times for effective change in property, recognise the crucial contribution of property professionals in delivering efficiencies, show strong leadership to encourage collaboration among local property owning bodies and bring public and private sector expertise together."
On the construction industry he added:
“The construction industry is a powerful engine of recovery, growth and employment. Reducing capital spending further would entail short term as well as long term risks to the economy.”
