The firm believes that the Chancellor is about to implement widely trailed increases to capital gains tax (CGT) which will have an unprecedented negative impact upon the private rented sector (PRS) and the wider housing market.

It is rumoured that the CGT changes will be introduced as early as the 3rd March to pre-empt any potential exit from the property market if the policy were to have delayed implementation. If the predicted change to the rate of CGT rises in the Budget to match tax rates, then higher rate taxpayers will see an increase from 28% to 40%.

On a property investment over ten years this would mean that the annual gain for landlords, second homeowners and investors would be between 1.9% - 2.2% per year. Given the additional costs involved in stamp duty land tax (SDLT) and land and buildings transaction tax (LBTT) in Scotland it makes property investment difficult to justify given the financial risks and the increasingly poor returns.

The Chancellor not only risks killing investment in the UK property market and causing a shortage of homes for private renters but could create turmoil in the housing sector for years to come.

David Alexander, joint chief executive officer of apropos, said: “It is understandable that the Chancellor must seek ways to recover revenues from the enormous debt incurred due to the pandemic, however, it is essential that he looks at the wider implications of any major shift in taxation. While landlords, second homeowners and property investors may seem an easy target the outlook for the property market could be disastrous if a policy is introduced which makes the UK housing market out of bounds for investors.

“Property is always an easy target because, unlike many other assets, property can’t be hidden away and as CGT affects a relatively small part of the population it looks like an easy fix for the enormous debt accrued during the pandemic.

“But the impact on the housing market could be severe. If, as is rumoured Rishi Sunak intends to introduce the CGT changes on Budget day itself, then there will be many landlords and investors who will know they cannot sell immediately and must plan accordingly. This could involve retaining properties for much longer periods and continuing to get rent, transferring their portfolio to short term or holiday letting which has a more favourable tax regime, or simply seeking legal means to transfer their assets to a more favourable tax structure.

“The outcome, therefore, could be reduced revenues, fewer properties in the private rented sector, and an extremely disgruntled and disaffected group of landlords, investors, and second homeowners who feel betrayed simply because of their desire to invest in property.”

Mr Alexander continued: “It should be remembered that the majority of landlords in the UK own a single property which has sometimes been accidentally acquired through inheritance or an inability to sell their own property and deciding to rent it out instead. These investments are often used to fund retirement rather than fund a lavish lifestyle. Targeting this group is risky politically and potentially limited in revenue generation. The larger property investors will have advisers who will be able to reduce the impact of any CGT change in the medium term so may be less affected but for the many individuals with one property this could be financially devastating.

“If this proposed CGT change is implemented solely on long-term letting, second homeowners, and property investors without appropriate amendments to the existing, more favourable, tax regime for short term lettings and the furnished holiday lettings market then a serious anomaly will have arisen which could easily divert many properties toward the holiday market particularly this year with the predicted boom in staycations.”

Mr Alexander concluded: “After a period when the housing market has been experiencing something of a boom there is a very real danger that this could quickly be lost if there is a sudden rush to market by landlords, investors and homeowners offloading their properties due to current financial difficulties and future tax penalties.

“A sudden dip in the housing market at a time when it has been one of the more reassuring sectors of the last year, would have the double impact of depressing the finances of everyone who owns a home, whilst impacting the wider prospects for the economy which will take a hit if prices suddenly drop.

“The property market is largely driven by sentiment and sending the wrong message at a time when it is potentially fragile due to the ending of the stamp duty holiday could deliver a double whammy which could throw all recent gains into reverse. The bigger risk is that the Chancellor ends up seriously damaging the private rented sector, fails to substantially increase the tax take, flattens the wider property market, and ultimately ends up hurting the prospects of homeowners, landlords and tenants.”