If the Liberal Democrat – Conservative coalition is to survive the test of time I think that capital gains tax (CGT) could prove to be an issue that comes back to haunt the relationship.  I fully understand and agree with the sentiment that it is unfair that those on lower incomes pay more tax as a proportion of their income than those on higher wages, who are able to pay themselves in dividends.  However, I am concerned that including all of the buy-to-let market in the new capital gains tax bracket will come back to bite the coalition as an ‘its the economy stupid’ moment that hits the middle class swing voters.  There are certainly arguments in favour of reducing the extent of buy-to-lets in our housing market that suggests that fewer buy-to-lets would possibly avoid over heating the housing market reducing some pressure on housing demand by boosting supply.  While I agree with this argument I am not sure it will be enough, as at the end of the day people still need somewhere to live regardless of the price or form of ownership and we simply are not building enough affordable homes. So reducing buy-to-lets will have a limited impact in most areas.

The reason I am worried that the issue will come back to haunt the coalition is that there are people in the UK who do not feel wealthy, who have put their savings that are to provide for them in the future when they retire into a second property and will now find that this change will make them significantly worse off.  I suggest that when the finer details of the CGT policy are worked out, those doing the calculations consider this.  It was suggested by the last government that people would be able to put residential property into a Self Invested Personal Pension (SIPP), before it changed its mind.  A U-turn on this would have been ideal when the housing market collapsed earlier in the year, but alas it was not to be.  What I do hope happens is that the government considers allowing a person to invest in buy-to-let property as part of a SIPP, even if it is with a quite restrictive limit. 

We often hear that the government wants to encourage people to save earlier and save more for retirement and the need to reform public sector pension.  I agree with this, but I can see that the change to CGT may have an unintended consequence that is quite the opposite.

I am happy to be open and say that I am paying into the Teacher Pension Scheme, I get the feeling that my wife and I need to put more aside than just my pension.  For my wife, paying into a pension invested in shares is one option, but I cannot help thinking property might be a safer long-term option.  Part of my desire to ensure we have a second pension option is that I have no faith future governments will actually pay out my teacher’s pension at the rate I am being promised as I pay in.  I just cannot see how they will be able to afford it.

I am sure that some people reading this will criticise and say that this is all very well for me as a teacher talking about pensions given how gold plated the public sector situation is perceived to be, but that misses the point that in an effort to make sure people are charged a fair rate of income tax, the government may well be creating a situation that provides a disincentive to save that will make it even more difficult to reform public sector pensions when people look at the alternatives in the light of the higher rate of CGT.  Considering the rules for SIPPS at the same time as CGT in my mind is a very good idea as the two topics are interrelated for many trying to save for retirement.  CGT is not simply about business people.