Pushing Capital Gains Tax (CGT) rates up to the levels of income tax could spark a mass exodus of landlords from the market, property experts warn.

This follows a report from the Government’s tax advisers suggesting that Chancellor Rishi Sunak could bring CGT – currently 28% on residential property and 20% on other assets – into line with income tax so that higher rate taxpayers face a flat rate of 40 or 45%.

It also suggests reducing the annual CGT allowance threshold from £12,300 to £5,000 or less.

David Alexander, joint CEO of apropos, says this potential increase in tax payments is extremely risky and would have an enormously detrimental impact on the housing market, stifle growth and discourage investment.

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“Any large-scale exit would flood the market with homes, depressing prices at a time when the property sector is in desperate need of support,” he says.

Paul Shamplina of Landlord Action, says: An increase in CGT is likely to prompt a flood of landlords selling up before the deadline, further reducing the supply of rental properties available to tenants.”

Income vs gain

Currently, doing up properties to sell them on is considered an income while holding onto property and then selling it for a profit is counted as CGT.

The Office of Tax Simplification’s (OTS) defends its recommendations, as it says not understanding the difference between these investing and trading activities can lead to non-compliance, where someone can incorrectly declare a capital gain rather than a trading profit.

“A greater alignment of rates would create a more neutral tax system, in which people were left free to make the right decisions for their business or family without the complexity of having to worry about unwittingly stumbling across the wrong side of a boundary,” it says.

It also acknowledges that landlords find it difficult not knowing their final CGT liability until they know their annual income tax liability, particularly when completing a 30-day tax return for residential property.

About £8.3bn of CGT was paid in 2017-18, compared with £180bn of income tax by 31.2 million individual taxpayers.

Guide: Complete CGT tax guide for 2020/21.

16 COMMENTS

  1. Just what LLs need – having endured a year when rent became optional and eviction impossible, we now can’t even keep the profit our investment has made when we sell it!

    When did LLs become the devil in disguise?

  2. Haven’t Landlord’s been punished enough. Good landlords have been punished for bad landlords, we have to endure licencing, checks, not able to evict, be left with bad debts through non paying tenants, repair damages without any way of getting compensation ALL WITH NO REALISTIC BACK UP FROM THE LAW. We are now seriously considering selling if the CGT is changed. We don’t have a large portfolio (3 properties in total).We’ve worked hard with our properties, kept them in good order, applied all the regulations thrown our way in order to have a pot of money at the end to prop up our retirement years so my husband and I won’t be a drain on society. If this is changed it will leave us with virtually no compensation/profit for all the years of hard work. Why should Landlords be hit to pay for the furlough scheme, which my husband’s company would not do so he lost his job. SHAME ON YOU MR SUNAK AND THE GOVERNMENT

    • Cheryl, you ask ‘haven’t landlords been punished enough’. I suspect that this government may eventually introduce PALs (Psychological Assessments for Landlords) whereby all landlords will have to undergo regular 5 yearly psychological assessments to assess whether they are in a fit state of mind to be a landlord. Of course the way they are going you’d have to be out of your mind to be a landlord. These will probably cost each landlord about £500 plus VAT. Also, I expect that it’s possible they may even re-introduce tarring and feathering for errant landlords. The government is also I believe considering setting up a new quango to oversea and control landlords to be called the Bureau for the Administration of Landlord Legislation and Supervision, or BALLS for short.

  3. Many Landlords received ZERO help during lockdown as HMRC say they are investors not traders therefore not entitled. Yet now we are going to pay for the furlough by paying more in capital gains tax. Seems grossly unfair.

    Landlords have lost a lot of tax breaks over the last few years and suffer additional costs with increasing regulation almost year on year and now can’t even evict nonpayers.

    Have the Tories have become New Labour???

    Labour lost their core vote as they ignored the working classes now the conservative party are ignoring (Taking for granted) the millions of natural conservatives (Landlords) who are not huge corporations but mostly individuals who worked hard all their lives paid taxes on those earnings and now own one or two rental properties to boost income in retirement.

    The sale of those properties in later life will be paying for social care saving the govt millions.

    The Tories will incentivise people to sell up now and therefore as they reach old age the govt will then have to pick up the bill as the “Investors” will have few assets remaining.

    Tory… As a political term…

    Tory was an insult (derived from the Middle Irish word tóraidhe, modern Irish tóraí, meaning “outlaw”, “robber”

    Hummmmmm…. The worst kind of robber is the one that robs from their friends.

    Seems they are intent on living up to their name.

  4. Can anyone explain in simple terms if yiu are poor enough to no pay income tax as a landlord when yioy decide to sell and the profit is say £50.000 after holding for 30 years will only the income £10000pa plus gain mean 40% on the £10,000

    Ok we sell or do we transfer to a limited company – need to see a tax specialist ASAP

  5. Here’s a business opportunity for someone , to set up a business that buys houses over 10 years where someone sells 10% of tehir property each year over 10 years to someone, thereby reducing tax liability each year

  6. We are a two Bob country going down the pan fast. Can you not see that? Governments are desperate for cash to prop up an insane system. This will have to continue to keep a status quo….

  7. Well Boris you have lost the plot!.

    I have always voted Conservative since I was old enough to do so, now 71 Years old and I won’t be voting conservative again. I worked hard to build up my Property portfolio, so I would have a comfortable retirement and not be dependant on the State.

    I had my own Lighting Company for 50 Years, and if I had alienated my Customers the way Boris has done with his supporters I would not have lasted that long.
    They need to throw out all these Public School Boys and career Politicians and get People from Industry to run the Country.

  8. Watch out! It’s going to be cheaper to leave properties empty and “pretend” to live there rather than let them out and instead collect the tax free residential capital gain on the sale. Tax free captial gain beats taxed rental income.

  9. Don’t panic landlords!
    1) Mr Sunak and his wife have a property portfolio of £10,000,000. Is he really going to stab himself in the back?
    2) Most MP’s / Ministers have several properties. They feather their own nests, so are they really going to tax themselves too much? Just think back to all the times they’ve awarded themselves a healthy pay rise, when pubic sector pay has been frozen, or at best has only risen by a pittance!
    3) There would be no point in increasing CGT too much because landlords will just keep hold of their properties. There would be no gain to the government.
    Yes CGT will probably rise but only by a token amount, nothing to lose sleep over.

  10. A landlord buys a BTL for £100k and it grows in value at 5% per annum compounded over 10 years, at which point hey sell. The house would be worth around £165k, leaving a 65k profit. However, inflation alone (average of 2.46% from 1990 – 2018), would account for £29k of this rise, so in actual fact the real profit is only £36k. Assuming they reduce the tax free allowance to £2k, a higher rate tax payer (40%) would pay circa £26,000 in CGT, leaving the investor with £11,000 giving a yield of about 1%. In this case the government receives the lion’s share of the capital increase with none of the risk, with an effective tax rate adjusted for inflation of 72%!

    * I am being generous with house price increases at 5%. Projections for the next 10 years predict a rise of only 2 – 3% over the next 10 years, in which case the seller would actually make a loss.

  11. Having read all the comments I would agree with most except for Ray’s comments. Someone like Sunak and MPs whatever their colour maybe would have had a limited company set up years before and have mangling agents and tax consultants. This would be tax would serve companies with a large property portfolio and they will be hanging around waiting to buy up any properties coming on the market. We have to deal with the cladding issues, which had gotten worse because the government had not thought things through. Their first reaction is ‘cover my back’ first. So this irresponsible action has caused the property market to stall. So what is one more problem to deal with, properties with cladding cannot sell even for the big boys. Well done Mr Sunak and Mr Boris. Most of us own a rental or two properties portfolio, to look after us when we retire. Shame on you Mr Sunak, you have forgotten the poor pensioners in your greater scheme of things. FOOD is getting more expensive but the pensioners are not getting a Covid increase in their pension. Most of them live from hand to mouth. A raise of 5% of their food bill will mean to have to give up on something else. I will not be voting Conservatives anymore. I was a try blue but not anymore. I cannot imagine Labour will do a better job. So readers welcome to UK the clone of the USA political system. A two party system. My solution is for the young to start a political party which believe in looking after the people work for the people.

  12. As suggested the way to beat the system is to get rid of tenants.
    Then take on single unrelated lodgers while ‘living’ at each property.
    There is no law preventing multiple resi homes though only one PPR for CGT exemption is permitted.

    So officially move to a new PPR which will be one of the LL rental properties.

    Leaving the family home officially but not in reality.

    Then sell the new PPR after about a year and so on before eventually officially returning to the original PPR which won’t have increased much in value at all.

    Lodgers may be taken in as many homes as you have.

    Reside at least once per month in them though only one RFRA is permitted at whatever home you choose to assign the allowance to.

    It doesn’t have to be at a PPR.

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