UK Property Market Could Get Tax Hike

---

Britain's new coalition government is proposing to double the capital gains tax on "non-business" assets, including property and second homes.

Although details are sketchy at this point, the proposal could raise the capital gains tax from 18 percent to more than 40 percent for some investors. The current proposal only calls for a rate "similar or close to those applied to income."

Whatever the final number, economic observers expect a capital gains increase to happen - and it could have a dramatic impact on the property business.

"The expected changes to capital gains tax legislation will particularly impact higher income tax rate paying investors and second home owners, for whom the effective rate of tax could potentially rise from 18 percent to 40 percent to 50 percent," said Savills director of residential research Lucian Cook in a statement.

In the short term, the measure might lead to a flurry of sales, as investors look to unload property and second homes before the increase.

"In advance of these changes being formalized, we are likely to see people scramble to take gains, prompting a rush of sales of second homes and share portfolios," National Association of Estate Agents chief executive Peter Bolton King told Sky News.

The British Property Federation also used the proposal as an opportunity to lobby for residential REITS.

"The government must to look to nurture new investment streams into housing--through residential REITSs and from the institutions," BPF chief Liz Peace said in a statement.

While the tax may spur short term sales activity, it could have a devastating impact on long term investors, who will simply look for other asset categories to stash their money.

"The housing market is still very fragile," Bolton-King said. "There are fewer transactions going through, it's still difficult to get a mortgage and the last thing we need is anything that's going to upset the delicate recovery."

---