Is this the first true test of the coalition government?

4th June 2010

In a world of middle-ground politics, capital gains tax seems a rare divisive issue along left and right lines.

Those of a certain persuasion feel an 18% rate of CGT, compared to the imminent 50% higher rate income tax, is unfair and favours a certain class of people.

Others – including several high profile Tories – suggest lower tax on capital encourages entrepreneurism and increasing CGT to income tax levels, as proposed by George Osborne, will harm UK businesses.

Further slowdown in the housing market

Wherever you stand on this, no one wants see another decline in the slowly recovering housing market – but many commentators suggest a CGT hike might cause exactly that.

Some believe imminent tax changes will force second home owners and buy to let investors to panic sell properties while the 18% level remains in place, flooding supply and pushing prices down.

Several economists draw comparisons with chancellor Nigel Lawson's announcement in the 1988 budget that he would abolish tax relief on second home mortgage interest the following year.

Many claim this caused a rush to purchase properties and bought the buy-to-let boom of the early 1980s to an end.

Uncertainty the overriding issue

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