subject: The New Governments Affect On Investors [print this page] There are many decisions to be made by the new government over the next few years. So what are likely policies that will affect investors?
The headline policy so far that will affect investors is the upcoming increase in capital gains tax. The rate is currently 18%, but is set to more than double to 40%. The reason behind many of the governments decisions, and especially any tax increases, will be to reduce the deficit.
This capital gains tax policy could have a negative impact on those investing in property. The thinking behind this is that those with a second home, for example, can afford to own two properties so are less likely to feel the hit compared to the less well-off members of society. It could also bring down competition for homes and bring down prices, therefore meaning more people could afford a home.
It is not just those who own holiday or weekend homes who will be impacted though. Much of the rental market is due to those who invest in property; people buying to rent and then selling for a profit further down the line. This will inevitably have an impact on the buy-to-let market. People will be less willing to purchase property they do not intend to live in. It has been argued that this could cause a problem for those wishing to rent, but some might argue that it could benefit those who are currently looking to rent, as they may be able to afford to buy a home if house prices fall. Some have bought property as a retirement investment instead of paying into a regular retirement fund. They do this to sell the property when they reach retirement age, and then use the profit to live off. The increase in capital gains tax will mean less people will choose this option, and those who do will get less from their investment. For example those selling a house for 200,000 under the current rate would pay 36,000 leaving a total of 164,000, whereas those selling under a 40% rate would pay 80,000 in capital gain tax, therefore leaving just 120,000, over forty-thousand pounds less.
Here I have focussed on the particular concerns of property investors but the rise in CGT will affect all investors. Shares and any other investments will be taxed at 40% as well and many are likely to be unhappy. It will not increase the risk of investing, but will mean investment will need to increase more significantly to make a good profit, or to make up for less successful investments.
There could well be further regulations for investors, with short selling potentially targeted. The new business secretary Vince Cable, a Liberal Democrat, has long trumpeted more regulation in the banking and wider financial sectors. He is likely to try to push regulations to prevent irresponsible investment. This may not adversely affect sensible investment, but on the other hand it is possible that in an attempt to prevent irresponsible investment sensible investors could be hit as well.
The positive news could be the attempt to reduce the public deficit. If the countries finances are more in control then it is good for investing. Amongst the other benefits on investors could be a rise in interest rates.
With every government there are changes that affect different types of investors, either negatively or positively. It will take some time before we know the full affect of the Conservative - Liberal Democrat coalitions policies on investors in the UK.
