Best of the Week

Capital Gains Tax Impact on Markets, Buy to Let Rush to Sell Properties

Personal_Finance / Taxes May 31, 2010 - 05:06 AM

The FTSE is already suffering under the implications of the proposed Capital Gains Tax changes of expectations that the tax will rise from 18% to 40% which has resulted in gains being banked by private investors ahead of the tax hike on 22nd June. However the real hit from the tax hike will be felt not in the stock market but the property market, which hits the large number of buy to let sector investors who rely up on capital gains as an important element in generating total returns.

Therefore expectations are for a surge in buy to let investors rushing to sell ahead of the tax hike, for which they have a very short window of opportunity of 22 days remaining. Another major contributing factor is scrapping of the costly Home Information Packs (HIPS), that has kept supply limited and hence supported house prices. HIPs have now gone and so home owners have no extra cost to bare by putting their homes on the markets which is as illustrated by the property website Rightmove that is seeing a 34% rise in listings.

Of greatest concern is that a tax hike without reintroducing indexation for inflation would destroy the incentive for long-term investing. Therefore the government would be using inflation as a stealth tax to DOUBLE tax long-term investments, especially in the property market into oblivion, where it will become near impossible for an investor to make a gain in real terms. The same applies to stock market investments outside of tax free wrappers such as ISA's and SIPs, as there would be NO INCENTIVE to invest for the long-run.

On top of this there is mounting evidence that raising capital gains tax may actually result in less tax revenue as people are less willing to realise gains i.e. to delay action, whereas a lower tax rate makes investors more likely to realise gains resulting in greater market turnover.

Source: http://www.marketoracle.co.uk/Article19921.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

Comments

Nasir
31 May 10, 15:03

capital gains tax theft

This is what the government loves, taxing the poor and middleclasses, its all about control, statistics prove that 95% of the population will never become wealthy, and these taxes, inflation and other ways of ripping off hardworking citizens are just the tip of the iceberg. 40%/50% capital gains tax if implemented for lower income earners as well as the more well off would just be another nail in the coffin of this government. Labour seem relaxed in opposition just waiting for the inevitable, it may take 5 years but they don't mind. If you sell your property, pay your CGT and then die, you still have to pay inheritance tax on whatevers left, well your inheritants do. Its just appalling how people get pushed and shoved their whole lives and never question well why?

John Spencer
31 May 10, 16:45

CGT

As a first time buyer who works hard for an average salary but still cannot get my foot on the property ladder I can only say one thing: BRING IT ON! A house should be a place to live not a source of income for those who got lucky by purchasing at a time before banks became irresponsible with their lending and drove prices artificially high. Why should my salary which I slog my guts off for be more taxable than an artificial price ceiling? Second home owners are not 'prudent' they are in it for the buck and they know that an economy heavily based on property speculation is coming to an end.

Nadeem_Walayat
31 May 10, 17:40

Government Interference

As with everything, if you peel away the layers you see the hand of government manipulation.

Labour should NEVER have cut the tax to 18% from 40% and also should not have aboloshed indexation. The policy was to help boost the UK housing market in advance of an election.

Second home owners see these homes as pensions, which is related to the fraud they are subjected to if they take out personal pension plans that NEVER live up to expectations, or as we saw with standardlife default on pensions.

My next indepth analysis / ebook will analyse the UK housing market.

Post Comment (Moderated)

Subject:

Name:

E-mail address (will not be published):

Comment:

Commenting Issue - If on submitting you are returned to the main Index Page (50% chance) then your comment has not been accepted, Follow below steps for 95% chance of comment being accepted.

Click your browser Back button (from main index page).
COPY your comment text from Comment box (i.e. copy to clipboard).
Press PAGE Refresh - You should see the message "You are not authorized to carry out this operation"
Paste your comment back into the comment text box.
Click Submit - If everything goes okay you will remain on the article page with the message "Your comment was held for moderation and will be reviewed shortly".
If instead you are again returned to the main index page then repeat 1-5, alternatively EMAIL to comments @ marketoracle.co.uk quoting the article number.

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2011 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.