Landlords won’t face a hike in Capital Gains Tax (CGT) after the government decided to shelve plans to align it with Income Tax and cut the levy’s annual allowance.

The Office of Tax Simplification (OTS) had suggested the changes, which were dismissed on the Treasury’s second tax and administration day when it set out details of proposed changes and consultations on the tax system.

lucy fraser mp

Lucy Frazer MP (pictured), financial secretary to the Treasury, told the OTS that these reforms would involve a number of wider policy trade-offs.

“Careful thought must be given to the impact that they would have on taxpayers as well as any additional administrative burden on HMRC,” she said, adding: “The government will continue to keep the tax system under constant review to ensure it is simple and efficient.”

CGT is taxed at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers, or 18% and 28% respectively on residential property, while the first £12,300 of CGT is exempt.

The OTS proposals had suggested bringing it in line with Income Tax, currently charged at a basic rate of 20%, and rising to 40% for higher rate taxpayers.

It also suggested cutting the annual allowance, which could have dragged many more people into the tax net.

Costs revealed

If these changes had been adopted by the government, previous research by lettings and estate agent, Beham and Reeves based on the average capital gain of a buy-to-let investment of £82,798, had shown how it would hit landlords hard.

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.

But if the changes had taken effect, 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.

Despite the respite, tax experts have warned that the rise is still likely in the future.

11 COMMENTS

  1. Yet another reason to sell now – before the CGT on residential property becomes even more punitive. There really are fewer and fewer reasons to be a LL – where are all the people going to live?

  2. CGT is a disincentive to move capital, just like speeding fines are a disincentive to drive too fast.

    It would be more sensible to allow gains to roll over, with tax being paid when capital is moved from investment to expenditure.

    One idea was touted that all investments are tax deductible, and all realisations taxed at income rate. Thus if you sell investments to pay for high living or consumer items, then tax is paid, 20% VAT and 40% IT, making a total of 60%. That could prove good for the environment as well.

    Also CGT is a wealth tax, with top rates as discussed. The possibility that it may rise to 40% should be compared with Hitler’s Jew Wealth Tax of 25%.

  3. How about Exempting all small Landlords from CGT on property sales for a period. I’d sell my properties immediately, as I’m sure a lot more Landlords would. CGT is the only thing stopping me selling. The government seems keen to get small Landlords out of the business and more properties will be available for first time buyers – win win!

  4. Sell anyway. HMRC says one thing and does the opposite it’s government controlled. CGT rates will rise. IHT will rise. It’s aimed at the wealthy. Middle trapped wealth. To well off to be on benefits not rich enough to avoid paying.

  5. The problem with encouraging small landlords to sell immediately means their tenants are thrown out of what is their home, either on the sale or soon afterwards by their new landlord.

    Of course the more strife an turmoil there is it means more for government to do, so they have no incentive to consider this. It creates jobs sorting the mess out.

    In America, one of Biden’s main planks is to “tax the rich”. That that is the antithesis of the original founding ideals of the U.S. doesn’t seem to matter much to the administration or to a large percentage of the population. People have always been exquisitely adept at taking their own anger and frustration over their own circumstances and misdirecting it onto the actions or circumstances of others. Like coming home and kicking the cat after a bad day at work. (Disclaimer – I do not partake in or endorse the kicking of cats in any way, shape or form.) To continue, the world is largely the way it is, rife with authoritarian governments and starving masses, precisely because of this quirk of human nature. I believe that the more people accept personal responsibility for whatever circumstances they find themselves in, the less likely it will be that authoritarian governments will continue to proliferate.

    • Totally agree. People should be encouraged to take some personal responsibility, whether it be regarding savings, pensions, health, healthcare, housing etc.

  6. “The Office of Tax Simplification”. Ha, almost an oxymoron isn’t it? They should be shouting loudly to not bring in TMD as dong 5 tax returns a year is way more complicated than doing 1. Duh!! Not rocket science is it?

  7. Forget the CGT hit now.
    Still sell up.
    Wealth taxes are coming even more so if Labour get in next GE which is highly likely.

    Govt will be coming for 2nd property CG.
    Electorally Govt knows that it can do what it likes to LL or any 2nd property owners.
    Few votes will be lost.

    Govt will remove all the business reliefs that rental property of any type currently has.
    As an example that means a S24 version for corporate LL.

    LL should aim to be all sold up by 2025 when there will be flood of LL properties in their hundreds of thousands coming to market as they won’t meet EPC C status with it being unviable for LL to improve to C status.

    The great LL sell off will occur resulting in millions of homeless tenants.

    Many LL are coming to the end of their investment timeline.

    They are looking at cashing out.
    Might as well do it now at the current CGT rates as coming rates will only be increased.

    Shrewd LL will be all sold up by 2025

  8. LL Armageddon…..

    If you are looking to cash out it makes sense to do it before CGT hikes.

    Personally, I’m investing so whilst for some, the ever increasing levy on landlords is the last straw, there are others that see it as an opportunity.

    The government know this, take money from your CGT and from my stamp duty, then my income tax etc etc, This all keeps the wheels turning!

  9. Whilst it’s tempting to kick out a longstanding tenant and sell up in favour of maybe £5k extra in CGT, I tend to think that a continued tenant remaining in the property, still paying rent every month on the dot, will make up for that much more in the next couple of years whilst the gov decide what kind of EPC guidance we need to follow in order to reach a band C or not. Then you can really assess if that EPC C is possible and reasonable, and decide whether to sell or not then.
    After all, if I sell up, I will need to do something with the cash to generate the 8-9% yield that I’m getting now. Sitting in the bank will be fruitless.

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