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CGT reforms could trigger BTL sell-off

Capital gains tax reforms could mean a swathe of former buy-to-let properties will hit the market from Monday as investors seek to offload unwanted property, warn tax experts.

BDO Stoy Hayward senior tax partner Stephen Herring is warning house prices could fall by up to 10 per cent in some areas as buy-to-let investors take advantage of a reduction in capital gains tax.

Under CGT changes announced in the pre-Budget Report last October, sales made after April 6 will incur only a flat 18 per cent capital gains charge. With the existing regime, investors have to pay up to 40 per cent in tax.

Herring says some areas could see a 15 to 20 per cent increase in the supply of former buy-to-let stock as a result. He says: “We could easily see in areas where there are a significant number of buy-to-lets 10 to 20 per cent of additional properties going onto the market.”

Herring says areas dense in buy-to-let properties or second homes would be most acutely affected. He says: “From Monday there will be a much lower tax charge which could encourage a significant majority, maybe 20 per cent of owners of buy-to-lets, to monetise capital gains made to date. They could keep the other 82 per cent and look to re-enter the market when the position is clearer.”

But lenders insist the effect on the market will be far less dramatic.

BM Solutions head of sales Phil Rickards says: “Landlords have numerous factors to consider when looking at their investment property. From location to rents, tenants to regulation – there are several crucial points for contemplation. As investors weigh up their decisions tax, and specifically capital gains tax, is a fundamental factor however it is just one factor and the changes are unlikely to lead to a mass exodus from the market. Research consistently shows that the vast majority of landlords take a long term approach indeed research shows that the majority are looking to stay in the market for around 15 years.”

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