There has been a deluge of support for arguing that we should realise that choosing competitive and fair rates of CGT is the way to maximise the tax take and to encourage saving and risk taking. Just a few have written in to demand higher taxes on buy to let property.
Let me explain why I do not agree. We need a decent supply of rented housing in this country. In the next few years there is going to be precious little money to provide additional public sector rented accommodation – as the ex Chief Secretary to the Treasury rightly said “There is no money left”. We will depend on private sector rented homes for the extra we need.
There is growing acceptance that there needs to be generous exemptions from CGT for entrepreneurs who make risky investments to create jobs and provide facilities to the public. It will be difficult if not impossible to design such exemptions in a way which excludes someone from setting up a lettings business in a company format and enjoying such exemptions.
The only people likely to be caught by a high CGT rate will then be the smaller saver and owner of a modest buy to let property. One such family’s case came to my surgery yesterday. The lady said three of them had inherited a single house. The IHT had been paid. There was now a gain on the property which they would take when they wished to sell and distribute the cash to the three beneficiaries. High CGT would mean a second tax on the same inheritance. Many of my correspondents have single properties which they bought to provide them with capital for their retirement but did not place wihtin a pension plan. If they are taxed too much on the sale of the home they may need top up benefits to their pensions. Why must we penalise the saver and the prudent?
I do not accept that the purchase of homes to rent out is the prime cause of house price inflation. I agree with those who say housing is too dear, and too many struggle to get onto the housing ladder. As I have often explained on this site, that was brought about by the crazy monetary and credit policies of the decade up to 2007, when too many mortgages were available and when banks accepted ever higher multiples of the price and of incomes. To get house prices more into line with incomes we need saner credit and monetary policies. Deterring private rented accomodation will be insufficient to slash house prices, but will put rents up.