Thanks to its harbours, cliffs and beaches, and quaint towns such as St
David’s and Newport, the Pembrokeshire coast has long been popular with city
dwellers in search of a holiday bolt hole. That may be about to change.
In the past few days, Dominic Subbiani, a partner at FBM estate agency, has
taken calls from dozens of people worried about changes, expected next
month, that could mean second-home owners facing tax bills of tens of
thousands of pounds.
“It’s going to get extremely tough,” he says. “Second homes are a huge part of
the market in coastal Pembrokeshire — up to 40%. Plenty of people bought
them instead of pensions, typically spending £250,000. They don’t make more
than maintenance money from letting — usually about £10,000 a year — and
were either going to retire to them or call in a nest egg.”
On the other side of the Bristol Channel, Jonathan Cunliffe, director of
Savills estate agency’s office in Truro, Cornwall, has also been busy. “I’m
taking a lot of calls from clients asking if they should sell up,” he says.
“There’s been a real knock to the confidence of the second-home market.”
Like Subbiani, he fears a glut of properties hitting the market — without
any obvious new source of buyers.
The reason for this disquiet is a planned change to the capital gains tax
(CGT) regime, which is expected to be revealed by George Osborne, the new
chancellor of the exchequer, in his emergency budget on June 22.
While those selling their main residence can enjoy tax-free any profit they
have made, that is not the case with second homes. At the moment, the
difference between the price at which a property is sold and that at which
it was bought (minus any deductible costs) is taxed at 18%. The government
has indicated, however, that it plans to raise CGT rates to bring them in
line with income-tax bands — meaning higher-rate taxpayers may have to pay
as much as 50% of their profits.
Such a system was in place until April 2008, but its effects were mitigated by
“taper relief”: the taxable amount went down for each year a property was
held. No indication has yet been given as to whether such provisions would
be reintroduced. It is also not clear when the new system will come into
force. Most analysts expect it to be in April 2011, for the start of the
next tax year, but it could be immediate or even backdated to April 2010.
Some buyers are nevertheless turning the confusion to their advantage: Charles
Spence, head of sales at Christopher Scott, an estate agency on the Isle of
Wight, has seen some buyers use the threat of higher capital gains tax CGT
as a negotiating tool, offering lower bids in return for quick sales.
Many holiday-home owners may stay put, as the tax is payable only when a
property is sold. There would also be no impact on the many owners — as many
as 75% of the total, according to research by Savills — who intend to retire
to their second home.
There are, however, concerns that the move may be the first stage of an
assault on second-homers, who number an estimated 250,000 and are routinely
blamed for a variety of woes, from turning communities into ghost towns out
of season to pricing locals out of the market.
Liberal Democrat MPs, especially in the southwest, have long been vociferous
opponents of second homes, but the Conservatives’ apparent willingness to
play along with the expected tax hike — intended to fund a rise in the
income-tax threshold — will disappoint many owners. They will not have been
reassured by David Cameron’s comment that “a second home is not necessarily
a splendid investment for the whole economy”.
There may also be an effect on the buy-to-let market, with many amateur
landlords — especially those sitting on large potential capital gains —
selling up before the deadline. This could put downward pressure on prices
and lead to a shortage of rental property.
...but at least Hips have gone
What a waste of time and money that turned out to be, writes Roland White.
Last Monday, I sat down at my computer to fill out a Home Information Pack
(Hip). It cost me £350 plus Vat. Three days later, Hips were scrapped.
About time too. If anything symbolised the previous government’s devotion to
making laws for their own sake, it was the Hip, introduced in stages from
August 2007. They were supposed to smooth the house-buying process. In
practice, they just got in the way.
As I went through the form, I could tell I was answering questions for their
own sake: had I consulted the Environment Agency’s flooding website? Was my
home connected to the phone, broadband or cable television? What was the
point — especially as, according to one survey of estate agents, 90% of
buyers didn’t consult their Hip anyway? Peter Bolton King, chief executive
of the National Association of Estate Agents, welcomed the suspension of
“these pointless packs”.
So, with due sympathy to the Hip inspectors who are now out of a job, I won’t
be mourning the passing of the packs. My only question is this: can I have
back my £350 (plus Vat) back?