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VAT hike could trigger development home sales, predicts expert

The 2.5% hike in VAT announced on Tuesday by chancellor George Osborne as part of his Emergency Budget could prompt a surge in the sale of homes with development potential, according to Elaine Dobson, senior associate at law firm Bircham Dyson Bell.

VAT is set to increase to 20% on January 4 2011.

Dobson says: "The change to VAT could provide a boost to the economy, with an uplift in the number of contracts placed with builders, for example, for the renovation of property ahead of the scheduled 2011 increase.

"As budgets are still tight, buyers and owners could be looking to save against money they're planning to spend on their new home on everything from building works to sofas and new white goods."

Capital Gains Tax

Osborne (pictured) also revealed plans to hike Capital Gains Tax by 10% to 28% for higher-rate taxpayers as part of his announcement, dubbed the ‘big bang budget' by market commentators.

The increase took effect on Wednesday, with the existing 18% rate remaining for lower-rate payers. The annual exemption remains at £10,100.

A CGT hike has been expected since the new government came into power last month, sparking fears about the detrimental impact on the private-rented sector, particularly if it was as high as 40%.

But Dobson says: "I can't imagine it will prevent further investment in property assets or drive second home owners to sell their properties to limit any further gains, not least as most second or investor purchased properties were and are purchased as long term investments, or as alternatives to paying into a pension fund."

Housing benefit

A number of landlords will also be considering the impact of the new housing benefit cap on their portfolio. The cap is to be set at £280 per week for one-bed property and £400 per week for a four-bed, which Dobson says could well result in a BTL shake up.

"It may be that landlords move towards private sector tenants rather than council-funded tenants, which could make those larger homes even more difficult to find."

Osborne aims to save the UK economy £40bn by 2014/15, to help tackle the national debt crisis.




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