As speculation grows about potential changes to the capital gains tax (CGT) in the UK’s October budget, there has been a notable surge in larger homes being put on the market, according to Rightmove, the UK’s leading property website. With an expected CGT hike looming, property owners—particularly those with more significant assets—are choosing to sell, potentially to avoid future tax liabilities.
Rightmove reported that during the week ending 9 September, there was a marked increase in activity at the higher end of the housing market. Listings for larger homes, defined as four-bedroom detached properties and any five-bedroom or larger properties, were up by 15% compared to the same period in the previous year. Notably, in popular regions such as the east and south-west of England, which include some of the UK’s most sought-after countryside and coastal areas, the increase exceeded 20%. This surge indicates that many homeowners, anticipating a tax hike, are eager to sell while the current CGT rates remain in place.
Growing Speculation Around Capital Gains Tax
Recent reports from The Guardian suggest that the Labour government, under Chancellor Rachel Reeves, may be considering a CGT increase in the upcoming budget on 30 October. As part of its efforts to raise additional revenue, CGT adjustments are believed to be a key tool under consideration. The Resolution Foundation, a leading UK think tank, has also called on the government to address CGT and other tax reforms to generate billions in revenue.
CGT currently applies to any profit made from the sale of assets such as property (other than a primary residence), shares, or businesses, and rates range from 10% to 28%. With CGT being a potential target for rate hikes, many second-home owners, landlords, and investors with larger properties are eager to take action. The possibility of CGT rates increasing to align more closely with income tax rates has led to a flurry of activity, with some experts predicting a surge in property transactions as homeowners seek to lock in current tax benefits.
According to Rightmove, several factors could be contributing to this trend, including falling mortgage rates following the Bank of England’s August interest rate cut and the expectation of further reductions in the near future. However, increasing speculation around a potential CGT rise is another major factor. Many homeowners with larger, more expensive properties, particularly second homes, may be concerned about a future tax increase and are opting to sell now to avoid potential losses.
Impact on the UK Property Market
The fear of higher CGT rates is not the only factor driving property sales. In its recent survey, the Royal Institution of Chartered Surveyors (RICS) noted a slight uptick in the number of homes for sale, with more homeowners beginning to put their properties on the market. RICS pointed out that the housing market was showing positive signs, with both buyer demand and sales activity increasing. However, it cautioned that uncertainty about further interest rate cuts and the looming budget was keeping market sentiment cautious.
The UK’s housing market, while robust, has faced challenges over the past two years, with house prices dipping in many regions. Nevertheless, both Halifax and Nationwide, two of the country’s largest mortgage lenders, have reported recent positive trends, with house prices stabilising and even rising in certain areas. This newfound stability, paired with first-time buyers entering the market in record numbers, signals that the property sector may be poised for further growth.
Regional Hotspots for First-Time Buyers
Interestingly, first-time buyers continue to dominate certain areas of the UK market. Halifax recently named Manchester as the “first-time buyer capital of Britain,” reporting that 75% of all home purchases in the city last year were made by first-time buyers. Other hotspots identified by Santander include the London borough of Waltham Forest, Waverley in Surrey, and Bassetlaw in Nottinghamshire. These areas have seen significant increases in the number of first-time buyers over the past decade.
As property prices fluctuate and tax changes loom, the UK housing market remains in a state of flux. Homeowners, particularly those with larger properties, appear to be making strategic decisions in anticipation of tax reforms. With potential CGT hikes on the horizon, many are opting to sell their assets before the expected tax increase becomes a reality.
What’s Next for Capital Gains Tax?
While Chancellor Rachel Reeves has yet to provide clear details on potential CGT reforms, the possibility of a significant increase is driving a shift in behaviour among homeowners and investors. A rise in CGT could bring the UK in line with other European nations, where CGT rates are more closely aligned with income tax rates. Countries such as Denmark, France, and Spain have long taxed capital gains at higher rates, with some even taxing gains at the same rate as income.
However, many financial experts argue that such a move could negatively impact investment in the UK, particularly by entrepreneurs and wealth generators. Higher CGT rates could discourage long-term investment and lead to a shift in business activity away from the UK. Some advisers predict that if CGT rates were to rise significantly, the government could see an exodus of high-net-worth individuals and business owners seeking more tax-friendly jurisdictions.
Conclusion
The growing uncertainty surrounding the October budget is clearly having an effect on the UK property market, particularly for larger, more expensive homes. With many homeowners looking to avoid potential tax hikes, the surge in listings could be a sign of things to come. As always, individuals and businesses would be wise to consult tax advisers and stay informed about any upcoming changes in legislation.
For expert guidance on managing capital gains tax and other corporate financial matters, contact BSO Fintax today. Our experienced team can help you navigate the complexities of UK tax law and ensure that your business remains compliant and profitable in any economic climate.
