Estate agents say that many concerned owners are approaching them to offload properties before the emergency Budget on June 22. Anxious investors are preparing to offload second homes and shares in an attempt to avoid a government tax raid that is causing growing fury among Conservative ranks.
The coalition Government is facing its first serious rift after Lib Dem aspirations to rebalance the tax system ran into angry opposition from Tory backbenchers and grassroots supporters in the shires. In response, George Osborne has opened talks on watering down the planned increases to capital gains tax before his emergency Budget on June 22.
The unrest comes amid signs of a rebellion among high-earning Tory supporters preparing for a fire sale of shares and second homes because they are worried about the imminent tax crackdown. There are thought to be more than 250,000 second-home owners in the UK and it is thought that hundreds of thousands more investors could be caught out by the changes when they sell assets.
Simon Aldous, of Savills, the estate agent, said that he has seen a 40 per cent increase in valuation inquiries over the past ten days.
Stephen Herring, senior tax partner at BDO, the accountants, said: “We are being inundated, and I wouldn’t say that lightly.” Meanwhile, one wealth management chief said that his clients had issued instructions to sell their shareholdings in anticipation of a higher capital gains rate.
The mood of discontent among Tory backbenchers was underlined when MPs emphatically chose Graham Brady to represent their interests as chairman of the 1922 Committee. Mr Brady, who resigned from David Cameron’s frontbench team while the Conservatives were in opposition, won 126 votes while Richard Ottaway, the leadership’s favoured candidate, received 85.
The Chancellor is now holding discussions with Tory critics, signaling that he is prepared to negotiate a compromise. He is understood to be looking at a range of options, from minimising the rise to restricting the scope of tax so that it hits fewer people.
But Mr Osborne must still raise enough cash to satisfy Lib Dems that there has been progress on their signature plan for a tax break for lower and middle earners, due next April.
With many backbenchers expressing dismay at the rise in private, John Redwood, the senior Tory MP who chaired an inquiry for Mr Cameron into economic competitiveness, aired his concerns in public. He urged Mr Cameron to scale back planned rises in capital gains tax, insisting that they would be unfair and damaging.
Mr Redwood said that he had been “swamped with support” from those also opposed to increasing the tax on long-held assets.
An initial promise to raise the CGT rate from 18 per cent to “similar or close to” income tax levels prompted fears of an increase to something approaching 40 or even 50 per cent. The language was watered down in the Queen’s Speech, so that the pledge is now for rates “closer to” income tax levels, but the subtle climbdown has failed to quell opposition. Senior Tories predict that there will be problems for Mr Osborne with his party if the level is set above 25 per cent.
The Treasury is looking at further ways of limiting the impact, perhaps by scaling back the type of assets caught by the new tax. The coalition document says that it will only target “non-business assets” but Revenue & Customs does not have a legal definition for this term. A Tory source said: “If you have one holiday home, that isn’t a business asset. But what if you have three and get rental income? Or you have one then a relative leaves you a second? These are the questions this needs to deal with.”
Another unresolved issue is the level of the tax-free allowance, currently set at £10,100. The Lib Dems suggested lowering the level to £1,000 but this appears to have been vetoed by the coalition. The Lib Dem plan to raise the starting rate of income tax — a “longer-term policy objective” for the coalition — will cost around £17 billion.
Extracts taken from the Times online
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