MANAGING PARTNER AT BLACK BRICK
Q.Dear Camilla, I am a London property developer and in light of this week’s Budget, what will the week’s announcements mean for the capital’s housing market?
A.Well, the rise in capital gains tax (CGT) was far, far less than everybody expected, which is a great relief for those investing in property.
The fact that it came into effect at midnight on Wednesday was also good news – the immediate introduction meant that there was no short-term sell-off, which many people had expected. Consequently, there was no panic sale of properties, which might have happened had the chancellor announced a future hike in rates.
CGT has only gone up by 10 per cent for a higher-rate income earner and it is important to remember that this could have been a lot worse. We always advise our clients to take a long-term view – at least five and normally 10 years – and over that time frame, a 10 per cent rise won’t make a huge amount of difference.
A tax of 28 per cent is also a more preferable rate to the 50 per cent tax on income. Therefore, the hike in CGT won’t put people off property investing and I don’t think it will have an adverse effect on the London housing market.
People forget that CGT was only at 18 per cent for a relatively short period of time. Prior to April 2008, individuals paid capital gains tax at their highest marginal rate of income tax but from 1998 onwards they were able to claim taper relief.
The new system is simple with no tapering complications and it is really good news that it wasn’t as high for top-rate taxpayers as many had feared.
Q.Dear Camilla, I have recently sold my business and I am thinking about investing a significant sum into the London property market and become a buy-to-let investor. I know the majority of my gains will come from capital appreciation, but what is the outlook for the London rental market?
A.Recent research from estate agent Savills has shown strong gains in rents in prime central London. Low levels of supply, along with stronger corporate demand has pushed up rents in prime central London by 2.8 per cent in the first quarter of 2010, taking rental values 5.1 per cent higher over the last 12 months.
Supply levels continued to fall in prime central London in the first three months of the year as temporary landlords become sellers, returning their properties to the market. Stronger corporate demand has also served to push up rents.
This is definitely positive. We look after investment landlords and I think it is still a good time to be one in London, more so than in other cities. The capital has a lot of attractions – relatively few job losses are going to be seen in central London, there are still affordability issues that are forcing people to rent rather than buy. This should ensure that you suffer relatively few void periods.
However, that said, it is important for any investor, and particularly for somebody new to buy-to-let, to seek advice from a variety of sources, including buying agents, to ensure that you get the most out of your investment from the very beginning.
Camilla Dell is the managing partner at search and acquisition consultancy Black Brick. www.black-brick.com