Rents will soar with rise in CGT, tenants warned

Tenants in central London could see rents rise at an "astonishing" rate if there is an increase in capital gains tax, estate agents said today.

Raising the tax on selling investments including second homes will encourage landlords to leave the market and dissuade investors, they warn. The result would be fewer properties for rent, pushing up rates.

Thousands of Londoners and overseas investors have bought second homes to rent out and then sell. But if CGT rises from 18 per cent to 40 or even 50 per cent, it will be a far less attractive option.

The levy could go up as early as June 22, when Chancellor George Osborne delivers his Budget, although accountants say it would be complicated to have the rate begin mid-financial year.

Virginia Skilbeck of Douglas & Gordon said: "Stock levels have already fallen by 50 per cent resulting in a 10 per cent average increase in rents. Any further reduction in supply could have an astonishing effect on prices."