The Affects of a Rise in CGT

London Central Portfolio (LCP), real estate investment firm, warns that a rise in CGT could result in a negative trickle-down effect on the wider economy. LCP has conducted an analysis to demonstrate the potential adverse impact on the residential property market and wider economy by considering the effect of the previous property tax hike in 2016.

LCP reported that transactions slumped in Greater London by 25.08% year on year following the introduction in 2016, hitting a low not seen since the Global Financial Crisis and that they never recovered to the pre-2016 levels.

The report concluded that if transactions followed the same trend following the implementation of the proposed CGT changes, an estimated £1.7bn per annum will, at least, be wiped annually from ancillary businesses in London which service the housing market. The damage caused by this would be exacerbated by an estimated £630m per annum loss in Stamp Duty and VAT receipts as property transactions fall and the service sector inevitably decreases.

If the buying patterns from 2016 were repeated, almost £2bn is estimated to be wiped from just the Greater London economy let alone the rest of the UK, as manufacturing and building trades are affected as well as property related professional and service industries. LCP anticipates that buyer profiles will also change as current owners are replaced by those holding a longer-term view with no intention of selling assets. This would create a transactional lull over the next few years with a further knock-on effect to the UK economy.

Businesses that have already struggled due to the COVID-19 pandemic will be victims again. With the end of the Furlough Scheme in March 2021, the UK is likely to see a further increase in unemployment from these industries reliant on transactions. This does not take account of further losses in the struggling retail and leisure sectors dependent on a thriving international community who have traditionally invested in London but would be increasingly deterred.

The CEO of LCP, Aaron Punwani, says “A rise in CGT is neither certain to increase tax revenues nor likely to stimulate investment in the housing market. It has never been more important to have a well-thought-out strategic approach, looking at all the variables, rather than a short-term tactical ploy.”