ATTENTION BUT-TO-LET INVESTORS AND SECOND-HOME OWNERS
Look out for possible increase in CGT
As many second home and investment property owners will already be aware, with the Chancellor looking for ways to balance the books, there is growing speculation that an increase in the Capital Gains Tax (CGT) rate may be on the cards.
As a result and not surprisingly, many Buy-To-Let landlords may be questioning whether the time has come to sell, or at least to rationalise their portfolio or incorporate their lettings properties into a limited company.
A recent report from the government’s Office of Tax Simplification (OTS), laid out a number of potential changes to CGT which would make investment tax more punitive. Whilst it is by no means certain to happen, Rishi Sunak must now decide which, if any, of these changes he wants to take forward.
The OTS recommendation is to equalise the rate of CGT with that of Income Tax, amounting to a significant rise. At the moment, any gains on investments not held in vehicles such as an ISA or pension are liable to CGT. Individuals are currently allowed to make £12,300 of gains each year before the tax applies. After that amount, whilst capital gains on assets like shares or bonds are taxed at 10% for Basic Rate taxpayers and 20% for higher rate payers, the rates for second homes or Buy To Let properties are higher (18% for basic rate-payers ad 28% for higher rate taxpayers).
The proposed change would bring CGT to whatever rate of Income Tax an individual pays i.e. 20% for Basic-rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate-payers.
Whilst CGT is only paid by a very small percentage of the population, the OTS has also suggested a reduction in the CGT annual tax-free allowance from the current £12,300 to between £2,000 and £4,000, this would result in a substantial increase in the amount of CGT payable on a sale.
For some investment or second home owners, this may tip the balance in favour of selling sooner rather than later. Ultimately, any such decision should be made with the benefit of advice from your accountant, balanced with your own “life plans”.