Tax ‘solution’ that could bring the house down - David Alexander comment

Just as Covid-19 is about to be eliminated or at least severely subdued, another pandemic could hit the British people – an outbreak of tax rises to pay for the furlough scheme, increased claims for unemployment benefit and other costs to government associated with the current crisis.
Much of the wealth of this country is tied in with residential property, says Alexander. Picture: Lisa Ferguson.Much of the wealth of this country is tied in with residential property, says Alexander. Picture: Lisa Ferguson.
Much of the wealth of this country is tied in with residential property, says Alexander. Picture: Lisa Ferguson.

Such is the likely outcome if fiscal austerity rather than fiscal liberalism becomes the chosen method of repaying the hundreds of billions of pounds of additional, unplanned spend incurred since the end of March.

In one corner are those who insist the only way the debt can be paid down is through higher taxes. Those in the other corner propose that taxation remain at current levels, or even be reduced, thus boosting the Treasury coffers through the medium of increased company profits and greater consumer spending.

Hide Ad
Hide Ad

Already, however, the usual targets are being lined up in front of the taxation “coconut shy” – among them buy-to-let landlords – most recently by the Office for Tax Simplification.

Read More
A future beset by ‘known unknowns’ - David Alexander comment

The OTS, an arm’s-length department of the Treasury, charged with giving “independent” advice on tax reformation, last week produced a report calling for changes to capital gains tax (GTC) to help pay for the costs of the pandemic. However, as in so many other cases, “tax simplification” becomes a euphemism for “tax increases” and in this case, claim critics, the OTS proposals will mean three times as many people paying CGT as currently do now.

The OTS has suggested bringing CGT rates more into line with those of income tax, which are higher, and reducing the tax-free annual allowance from its current £12,300.

While CGT is payable on the profits from the sale of a host of assets, those disposing of rental investment (or a second home) would be particularly hard hit. Shareholders can minimise their exposure to CGT by selling in tranches. However this is impossible to do with a flat or house – and more than 80 per cent of private rentals in Scotland are held by individuals, most of whom own just one property. One investment management company has claimed that under the OFT proposals, the CGT on a £100,000 profit from the sale of a second property would go up from £24,556 to just over £35,000.

But landlords will not be the only ones disadvantaged; the consequences for the general public may be just as grim. Given the increase in direct taxation paid by property investors in recent years, additional CGT may be the last straw given capital appreciation (not just rental income) is an essential component in making investments viable.

More tax on this appreciation, therefore, risks greatly reducing the stock of privately-rented property, which is the second-largest provider of homes in the UK. And this would take place at a time when rising unemployment and short-time working meant renting was the only type of accommodation open to many people, especially the young.


True, a mass sell-off of rental properties would reduce prices which, in theory, should greatly advantage first-time buyers. But what good are lower house prices if you have lost your job, your income has greatly diminished or if the company you work for is threatening to make redundancies? No lender is going to grant a mortgage to someone in this situation – even if, in better times, they had managed to amass a sufficient deposit.

Then watch the effect ripple out to existing home-owners. In Britain, a house is just not a home but a financial asset – probably the only large form of wealth many families have or will ever have. We saw, back in 2008, how the credit crisis reduced house prices in many parts of the country and sent hundreds of thousands of homeowners into negative equity.

Hide Ad
Hide Ad

The effect on economic confidence, in areas of commerce way beyond the housing market, was severe. Like it or not, much of the wealth of this country is tied in with residential property and to suddenly dissipate accumulated value in this asset with little notice would disillusion many.

I realise we will all have to contribute more in some form or another. However, to pick on supposedly easy targets is not only wrong, but also likely to be counter-productive – because the “answer” to the problem could turn out to be almost as bad as the problem itself.

David Alexander is managing director of DJ Alexander

A message from the Editor:

Thank you for reading this article. We're more reliant on your support than ever as the shift in consumer habits brought about by Coronavirus impacts our advertisers.

If you haven't already, please consider supporting our trusted, fact-checked journalism by taking out a digital subscription.

Related topics:



Want to join the conversation? Please or to comment on this article.