Changes to capital gains tax may harm rural communities

04 March 2008 / by Joy Tibbs
Despite its target to provide 10,300 new affordable homes in rural communities with fewer than 3,000 inhabitants over the next three years, the Government's rural advocate, Dr Stuart Burgess, believes changes to capital gains tax rates could effectively price those living in rural areas out of the property market.

Chancellor, Alistair Darling, announced in his pre-budget report that a new single 18 per cent rate would be introduced to simplify Capital Gains Tax (CGT) rules and that taper relief would be scrapped when the law comes into effect in April.

This has angered many businesses who feel they will have to pay over the odds if they decide to sell up, as the current minimum 10 per cent CGT rate will no longer exist. On the other hand, Dr Burgess points out that when the rate is cut from the current maximum rate of 40 per cent to just 18 per cent, fewer people living in rural communities will be able to afford to buy property in their local area.

This is because the cut is likely to encourage more second home buyers to buy in rural areas. As the CGT rate payable when a second home is sold will be lower, more second home buyers are likely to consider buying in rural areas. Increased demand will inevitably lead to higher house prices, so that those looking to buy their first property will have to pay more if they wish to live in the countryside.

According to the Office for National Statistics, around 20 million people in the UK own a second home and this may rise significantly when the new rate is implemented. Meanwhile, first-time buyers and others struggling to get on the property ladder will find it even more difficult to buy rural property if Dr Burgess' predictions ring true.

Neil Sindon from the Campaign to Protect Rural England adds his plea to the Government to make rural housing more affordable. He said: "There is a desperate need for subsidised housing in rural towns and villages for local people who are unable to meet their needs through the market."

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