Buy-to-let landlords and second homeowners could see the capital gains tax owed if they choose to sell increase by up to £24,000 if recommendations by the Office of Tax Simplification to change the tax threshold are introduced, according to Beham and Reeves.
Currently, there are a myriad of rates that people pay, with capital gains tax ranging from 10% for basic-rate taxpayers to 20% for top-rate taxpayers for normal assets.
For property sales – investment properties, rather than a main home – it ranges from 18% to 28% for top-rate taxpayers.
However, the Office of Tax Simplification has called for CGT to increase in line with income tax rates to 20% at the basic rate and 40% at the higher rate, while also lowering the initial amount exempt to £2,000. This move was expected to come during the Budget at the start of March but to the relief of the nation’s landlords and second homeowners, it failed to materialise.
But the government will publish a number of tax-related consultations and calls for evidence on 23 March, and that could include capital gains tax.
Financial secretary to the Treasury Jesse Norman said: “We are making these announcements separately to the Budget, but still all on a single day, in order to give a range of important but less high profile measures greater visibility among members of parliament, tax professionals and other stakeholders, and greater scope for scrutiny by them.”
The research from Benham and Reeves shows that in the last decade, the average UK house price has increased from £168,703 to £251,500, meaning the capital gain of a second home or buy-to-let investment during that time sits at £82,798.
Based on this example time frame and when removing the exempt sum of £12,300, selling in the current market would see a lower rate taxpayer pay £12,690 in CGT, while a higher rate taxpayer would pay £19,739.
However, should these changes come into play, the tax owed would climb to £14,100 for a basic tax rate payer, while those in the higher threshold would see it increase to £28,199; a jump of £8,460.
London’s landlords would be worst hit and based on property price appreciation in the last decade, a hike in CGT would see basic rate taxpayers paying nearly £4,000 more when they come to sell, climbing by a huge £23,810 for those at the higher tax rate threshold.
Those paying a higher rate of tax in the South East and East of England could also see the cost of CGT owed on their investment climb by more than five figures, increasing by £13,206 and £12,958 respectively.
Director of Benham and Reeves, Marc von Grundherr, commented: “The proposed changes from the Office of Tax Simplifications would act as nothing more than another nail in the coffin of the buy-to-let sector, in particular.
“As it stands, landlords and second homeowners are already paying a substantial sum on their investment due to the increased value of bricks and mortar. A further increase in capital gains rates is nothing more than a blatant attack on them, especially those in higher tax thresholds.
“The government seems intent on targeting landlords and second homeowners as the cause of the current housing crisis. The reality is, their failure to build enough homes is the driving cause and so perhaps this should be their area of focus.”
| Location | Average House Price 2010 | Average House Price 2020 | Capital gain if sold | CGT allowance (2020-21) | Current CGT owed at basic rate of 18% | Potential CGT owed at basic rate of 20% | Increase (£) | Current CGT owed at higher rate of 28% | Potential CGT owed at basic rate of 40% | Increase (£) |
| United Kingdom | £168,703 | £251,500 | £82,798 | £12,300 | £12,690 | £14,100 | £1,410 | £19,739 | £28,199 | £8,460 |
| England | £176,036 | £269,150 | £93,114 | £12,300 | £14,547 | £16,163 | £1,616 | £22,628 | £32,326 | £9,698 |
| London | £285,353 | £496,066 | £210,713 | £12,300 | £35,714 | £39,683 | £3,968 | £55,556 | £79,365 | £23,810 |
| South East | £218,657 | £341,007 | £122,350 | £12,300 | £19,809 | £22,010 | £2,201 | £30,814 | £44,020 | £13,206 |
| East of England | £190,404 | £310,912 | £120,508 | £12,300 | £19,477 | £21,642 | £2,164 | £30,298 | £43,283 | £12,985 |
| South West | £189,735 | £282,388 | £92,654 | £12,300 | £14,464 | £16,071 | £1,607 | £22,499 | £32,141 | £9,642 |
| East Midlands | £139,103 | £215,046 | £75,943 | £12,300 | £11,456 | £12,729 | £1,273 | £17,820 | £25,457 | £7,637 |
| West Midlands region | £148,525 | £216,950 | £68,426 | £12,300 | £10,103 | £11,225 | £1,123 | £15,715 | £22,450 | £6,735 |
| Wales | £128,963 | £184,195 | £55,232 | £12,300 | £7,728 | £8,586 | £859 | £12,021 | £17,173 | £5,152 |
| North West | £131,347 | £183,727 | £52,380 | £12,300 | £7,214 | £8,016 | £802 | £11,222 | £16,032 | £4,810 |
| Yorkshire and the Humber | £132,685 | £182,907 | £50,222 | £12,300 | £6,826 | £7,584 | £758 | £10,618 | £15,169 | £4,551 |
| Scotland | £129,758 | £162,983 | £33,225 | £12,300 | £3,767 | £4,185 | £419 | £5,859 | £8,370 | £2,511 |
| Northern Ireland | £124,515 | £147,593 | £23,078 | £12,300 | £1,940 | £2,156 | £216 | £3,018 | £4,311 | £1,293 |
| North East | £119,688 | £141,154 | £21,467 | £12,300 | £1,650 | £1,833 | £183 | £2,567 | £3,667 | £1,100 |
| Sources | Gov.uk – UK House Price Index | Gov.uk – Capital Gains Tax | Gov.uk – Capital Gains Tax | Simply Business | Gov.uk – Capital Gains Tax | Simply Business | ||||
Taxation on property that should or could be someone’s secure and stable long term home should be the means to create a supply of secure and stable long term homes. Solving the housing crisis rather than tax revenue ought to be the priority. By providing tax incentives for releasing stock for ownership in a way that allows everyone to see a benefit.
Taxing property that is kept removed from the housing stock [either to buy or long term rent] is the way to encourage it back into pot of secure and stable long term homes.
If I were Rishi Sunak I would scrap CGT on BTL properties sold to periodic tenancy tenants where the landlord can show filed SA105 L&P returns for 5 years or more
I’d assess the full potential income of short let properties otherwise suitable as secure and stable long term homes, Flats and houses etc- excluding Shepherd’s huts, boats in fields, Vardos etc and tax those properties at a minimum 75% occupancy for the year with CGT at 40% when sold.
I’d do the same for 2nd homes for part owner use/ part holiday let, holiday let, kept for exclusive use by owners. Properties not suitable for permanent residential accommodation can be income taxed at the relevant rate.
It doesn’t seem quite right to me that people need to own properties that are not providing secure long term accommodation. Low interest rates facilitate the short let industry the competes with hotels and bed an breakfast accommodation and provides an unnecessary option for short term accommodation in towns and cities desperate for long term accommodation.
2nd homes deny local accommodation so I would tax the sale of the primary principal residence of those who have bought a retire to home that they will live in for 2 years or more. Buying a retire to home in advance puts pressure on local stock, taxing PPR would be a very effective way of discouraging homes kept vacant for years and years
If the government need tax revenue they could start by taxing all AST income landlords not just those who opt to complete SA105 L&P-
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Eeeek….. tax the wealthy, tax undeclared income, tax me, tax the uplift on my PPR in London so I can avoid CGT altogether… where’s that dislike button the bloke’s gone mad!!!!!
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Yep the first post is clearly from a deranged person!!
Trouble is the Tories are likely to consider such demented ideas and introduce them.
They have track history.
The demented S24 resulted from bonkers ideas.
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It is fascinating how our Politicians of all colours have an inability to create wealth only destroy wealth by its removal for them in the main to waste and the rest try and redistribute.
Nigel Lawson was the only brave and highly intelligent Chancellor, who REDUCED TAXES and INCREASED TAX INCOME – he then was poached into the Financial world of the City.
Those Chancellors and would be Chancellors without his skills, leave politics then I note enter the world of entertainment, or newspaper editors…………
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