In the wake of the Bank of England's recent interest rate cut, NAVA Propertymark has sounded an alarm, cautioning that any hike in Capital Gains Tax (CGT) could derail the fragile recovery in the housing market. Confidence, which had only just begun to re-emerge, may be in jeopardy if the government proceeds with such a move.

As of April 6th, 2024, former Chancellor Jeremy Hunt made a bold move by lowering the higher rate of Capital Gains Tax, reducing it from 28% to 24%. This decision directly affects landlords and those owning second homes who choose to sell, while the lower CGT rate for basic-rate taxpayers remained unchanged at 18%.

Interestingly, the Office for Budget Responsibility (OBR) had projected in its March 2024 Economic and Fiscal Outlook that this cut in CGT on residential property sales would lead to an uptick in transactions, potentially by around 2%. This slight boost in activity could inject some much-needed energy into the property sector.

At the same time, the Bank of England reduced interest rates from 5.25% to 5%. For potential buyers, this decision holds the promise of more affordable mortgages, which should, in theory, stimulate demand in the housing market.

Yet, looming on the horizon is a potential roadblock: reports suggest Chancellor Rachel Reeves may be mulling over an increase in Capital Gains Tax to address a staggering £22 billion shortfall in the nation's finances. This move, though fiscally necessary in the eyes of some, could pose a serious threat to housing market momentum.

NAVA Propertymark has issued a stark warning—raising CGT now, just as the market shows signs of recovery, could stifle growth at a time when it’s most needed.

Richard Worrall from NAVA Propertymark weighed in, stating, “The Bank of England cutting interest rates should help stimulate growth in the housing market, which is fantastic news for those who are hoping to purchase their next home.”

He went on to highlight the risks, adding, “However, if the Chancellor increases the higher rate of Capital Gains Tax, this could reduce the number of property transactions on the market at a time when full confidence needs to be restored to the housing market, especially when encouraging housing growth is a central part of the new UK Government’s mission.”

In short, while lower interest rates bring hope to prospective buyers, any potential rise in CGT threatens to dampen that optimism. The delicate balance between stimulating growth and addressing fiscal deficits is one the government must tread carefully, as the wrong move could disrupt a housing sector that has only just started to regain its footing.