A leading lettings agency has revealed how much landlords will pay if the Capital Gains Tax (CGT) changes proposed by the Office of Tax Simplification (OTS) last week are implemented by Chancellor Rishi Sunak.

These would 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 more.

It also suggests reducing the annual CGT allowance threshold from £12,300 to £5,000 or less.
Hamptons International has crunched the data based on the average equity held by a landlord within a property of £69,000.

For a lower rate tax payer, this would mean paying an extra £1,130 in CGT (or a total of £11,300) but for higher rate tax payers it would mean an extra £6,800 (or a total of £22,680).

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“If the annual CGT exemption is also reduced from £12,300 (2020/21) to £5,000, a higher tax rate landlord’s tax bill would rise to £25,600, nearly £10k or 61% more than the existing situation,” Aneisha Beveridge, Head of Research at Hamptons International tells LandlordZONE.

Allowable expenses

These figures exclude allowable expenses, which vary significantly depending on whether and how long a landlord lived in a property before renting it out and how much money was spent doing it up.

But Beveridge says that the OTS’s  proposals would force more landlords to put their properties within a limited company structure because they still able to offset mortgage interest, and their profit is taxed at corporation tax, currently 19%. 

Mitch Young (pictured), co-founder of tax consultancy Fusion says the uproar about such radical changes caused by the proposals within the tax and property world might temper the Chancellor’s appetite for change.

“Nevertheless, there is no doubt that Sunak is going to execute some kind of tax raid in his next budget, so landlords need to get their houses in order before this happens next Spring.”

Read more: CGT proposals will drive more landlords out of the market.

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