David Prosser: Tax threat to the housing market

Outlook House prices rose by another 0.2 per cent in April, the Land Registry said yesterday, taking the annual rate of house price inflation to 8.5 per cent. But what might a hike in capital gains tax in this month's emergency budget do to the property market?

The short answer is that an increase in the rate at which profits on the sale of second homes are taxed from 18 to 40 per cent – one possibility – might prompt many buy-to-let investors to cash in their portfolios before next April, when such a change would presumably take effect.

The Land Registry's data shows that the number of new properties coming on to the market was already up by 80 per cent in March. With demand still constrained by a tough lending environment, another big increase in supply might be enough to send the housing market into reverse.