Capital gains tax overhaul: how could it affect the property market?

 

There’s no crystal ball to predict what Chancellor Rishi Sunak will announce this autumn with regards to capital gains tax. But rumours are rife about what it might mean for property investors.

The UK tax system is continually under review by the government and the Treasury. This ensures it is fit for purpose, taking revenues, exemptions and potential areas for improvement into account. Capital gains tax affects hundreds of thousands of individuals and businesses alike in the UK, and further changes to the tax are now on the cards.

In an open letter to the Office for Tax Simplification, Chancellor Rishi Sunak proposed a review earlier this month. He requested that the OTS look into how to simplify CGT, as well as identify any issues. He also asked for proposals on “the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income”.

At this stage, it is unclear exactly what could change, but there are many obvious target areas. Property investments make up a major proportion of CGT revenue for the government, for example. With rumours that the results of the review could materialise in the Autumn Budget, many are already preempting the outcome.

Simplifying the tax

The most positive result of the rethink could be that the tax becomes much more simple. It is currently fairly complex, which can cause issues for many.

Sean McCann, chartered financial planner NFU Mutual said that CGT contains traps with “nasty surprises”.

“Few people realise that they may have to pay CGT when they give away property, shares or other investments. For example, if a parent gives a second property or a portfolio of shares to their children in order to help them out, that counts as a disposal and could be liable for CGT.

“It would make sense to simplify the rules to encourage the older generation to pass on wealth during their lifetime.”

What about property investors?

Earlier this year, the Treasury brought in a few capital gains tax changes relating to property. This included a tighter payment deadline, private residence relief changes and lettings relief changes. You can read more about these updates in this article.

The buy-to-let market has come under much scrutiny from the government recently. The industry has already faced some major tax changes with Section 24 over recent years, as well as additional stamp duty. This could therefore make it a target for CGT adjustment, too. For example, capital gains tax rates could be aligned with income tax rates, which would increase the bill for some selling second homes and buy-to-lets.

However, if the Treasury does change this, some believe landlords will simply stop selling if they could avoid it. Currently, CGT rates are lower than income tax.

Jo White, a director in the Tax Advisory division says: “Buy-to let-investors with portfolios held personally or in corporate structures will feel these changes if they look to sell parts of their portfolio or shares in the company that holds property.”

“Property investors have been the target of many recent tax changes and may feel unfairly targeted at a time when they are facing Covid-related rent holidays from tenants.

“Individuals with a holiday or second home could face, if they are an additional rate taxpayer, a CGT rate of 45 per cent on any gain from the sale of property and will have just 30 days to settle any liability.”

Many of the UK’s landlords and property investors will be eagerly awaiting the outcome of the latest tax review to see how it affects them later this year.

Highgrove Mews

High Net Yield Freehold Houses

  • Commutable to London (27 mins to central Paddington station)
  • Rental demand extremely strong with large industry presence in Reading
  • Freehold with 4% net yield

£284,955 - £457,000

St Petersgate – Stockport Manchester

New Launch - Stockport Manchester, apartments from £160,000

  • Discounted launch prices from £160,000
  • Excellent transport links with 3 trains per hour to London Euston and only 9 mins journey to Manchester Piccadilly
  • Experienced development team

Assured Rent Housing Association Leases

Assured Rent Housing Association Leases

  • Assured rent & no rental voids
  • Tenant damage cover & newly refurbished inline with requirements of a corporate sitting tenant
  • Free property and lettings management

From £62,000

Emerging Birmingham Commuter Town With Properties From Just £104,000

The emerging Birmingham commuter town where properties are selling in an average of just 24 days

  • A collection of 62 two bedroom apartments and 28 one bedroom apartments.
  • DE14 is one of the fastest selling postcodes in the West Midlands.
  • 23 minute train journey into Birmingham New Street Station.

Properties from £104,000

Mill, Stockport

The Northwest's emerging property hotspot

  • Discounted off-plan 2-bed prices from £162,000
  • Completion date - Q4 2021
  • Rental yields - 6% plus

Discounted off-plan 2-bed prices from £162,000

South Central – Birmingham City Centre Apartments

Highly anticipated 28 storey launch in Birmingham City Centre with an impressive roof garden and communal facilities.

  • 154 units across 28 storeys
  • Residential multi-media community room, gym, roof garden and sky cinema
  • Excellent future connectivity via the metro system to other key transport hubs and locations around the city

from £205,800

ba-

Talk to us

Speak to our UK property experts today: 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

+852 9865 4446

Open from 9am-6pm HKT

Stamp Duty Calculator

.

Unlock members only investment opportunities and full development details. Join now – it’s free, quick and easy.

Login

Not a member? Sign up for free

Buy-to-let tax changes: The investor’s guide to changes happening in April 2017

Capital gains tax overhaul: how could it affect the property market?

Example

By submitting your details via this online form you agree to be contacted via email/phone/SMS by Direct Marketplace Ltd t/a BuyAssociation in relation to property investment and property developments . We do not share your personal details with third parties.  To view our full Privacy Policy click here.