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September 17th 2013 / BY: Wisteria

Bank of England’s proposed house price cap

The Bank of England is being pushed to restrict the growth of house prices in the UK. Recent news reports suggest that the Bank of England should be more vigilant and use its powers more in a bid to limit the growth rates in house prices with suggestions from The Royal Institution of Chartered Surveyors (Rics) saying a 5% limit would trigger a cap on public borrowing with more reasonable levels of money being borrowed.

It comes as the UK economy is still feeling the effects of the 2007 credit crash which was partly caused by the housing bubble which inevitably burst. So to prevent another near global financial meltdown, the calls for 5% limited growth on yearly house prices could aid to manage expectations of future prices of houses and would prevent speculative demand which could push up prices further and create the dreaded ‘bubble’.

Homeowners may see this negatively as ultimately they would like to see their house price increase significantly over the years that they own the property, therefore making their initial investment in the house more attractive as their total profit will be greater. By limiting the growth rates of house prices, this inevitably means that every homeowner will make the same proportionate gain on the properties they hold. It will also go some way to promoting responsible borrowing where people will be able to better judge the amounts they can borrow relative to their incomes or the value of the property.

It does however mean that if the housing market is going strong, then the potential gains on any property will not be fully realised.

One benefit of limiting the growth rate on a year to year basis would be that homeowners could predict the maximum gains they could potentially make on any property they own (if they have the view of selling the property) – and consequently calculate the tax payable on these gains. With a limit of 5% growth, homeowners could calculate the maximum capital gains tax payable by taking the proceeds (with the accrued growth to the value) less their original costs and therefore calculate the gain and tax payable.

There are certain circumstances in which there may be no tax payable however. If the property is your main residence (you can own multiple properties), then the gain made on the property will usually be subject to Principle Private Residents (PPR) relief. This essentially means that any gain made on your main residences will be exempt from capital gains tax.

If you are in the process of disposing of assets or properties, we are Wisteria can assist you in calculation your tax liability and tax payable on the disposal of these properties. To find out how we can help feel free to call us on 020 8952 0140 or email info@wisteria.co.uk where one of the tax specialists here will be more than happy to help.