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Selling homes and stocks too soon could be costly

Homeowners and investors have been running scared since news broke last week that the Government is considering making sweeping changes to capital gains tax that would snare three times as many people in its net.
They are being told not to panic, as the consequences of selling up too soon could be even more costly.
The proposals, which claim to simplify the existing system, include increasing rates to bring them in line with income tax, slashing the tax-free allowance and charging heirs for inherited assets. If adopted, the new rules could mean hundreds of thousands more taxpayers are charged higher rates on profits they make from selling investments and second homes.
As head of personal finance Lauren Davidson argues, the changes are hardly a simplification: they are an out-and-out raid on people’s wallets. They could also change taxpayers' behaviour, reducing the expected rise in revenues. For example, the panic the reforms would trigger could lead to a stampede of owners rushing to sell second properties before they kick in.
This would then clog up the housing market with a glut of extra homes, dragging prices down. Property owners wanting to sell quickly will struggle to secure a good deal, particularly as analysts were already concerned about house price falls next year.
Landlords and second home owners may actually be better off following the changes. In some parts of the country, such as the South and Midlands, many would pay less under the proposals. This is because one of the proposals was to take inflation into account when calculating capital gains.
Another was to rebase values to the year 2000. Property investors would then pay CGT only on gains since 2000, so anyone who has owned a second property for more than 20 years would benefit.
Investors who sell up in panic could also get burned. Experts are warning that people may be pushed into riskier investments that offer greater protection from tax if CGT is raised.
One area where any gains will be entirely tax free is in our investing competition, Fantasy Fund Manager, which is back for season two. Whether you’re a seasoned investor or curious about starting out, why not put your stock-picking skills to the test?
The competition will run from November 23 2020 to February 19 2021. The winner will receive 10,000 and there will be weekly prizes of 100. To play, click here. Join us next Thursday to hear from last season's winners.
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In our comments section, Mr Clyde said of ‘How I built my property empire by 30’: young people swap first-time buyer dreams for rental profits: "This article is almost a mirror repeat of my own experience. I started in my early 20s with a 5,000 inheritance which I used as a deposit to buy a five-bed student let in 1983 for 25,000. By the late 1980s I had a couple of student lets, two small terraced houses, five flats and net equity of about 200,000. By 1992 I was in negative equity to the tune of about 50,000, the rents were nowhere near covering the bills every month and it was only my salary (and my credit card) that kept the whole thing going (just about)."
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