Chancellor John Healey has reportedly decided not to increase Capital Gains Tax (CGT) in next week’s Budget.

Healey is due to set out his tax and spending plans on 28 October and is under pressure to find measures to ease the cost of living and fund an increase for defence.

Some Labour MPs have called for an increase in CGT, however, The Times reports that Healey has decided against it. The move followed warnings that it could end up costing the government money if wealthy people leave the country or defer selling off assets, according to the BBC.

Last year, HMRC estimated that lifting the lower rate of CGT by 1% could raise £5 million by 2028-9 but increasing the higher rate of CGT by 10% would reduce the Treasury’s receipts by £3.6 billion in 2028-9. The amount raised could be reduced if people adapt their behaviour to the tax rise, for example by deciding not to sell a property.

Potential

Analysis by The Letting Partnership reveals that Healey's decision would spare landlords a potential 88% increase in CGT liabilities, equivalent to more than £15,600 on the sale of an average property.

It found that the average UK property was worth £198,169 in July 2016, rising to £272,611 by July 2026, an increase of £74,442 over the last decade. Under current rules, a landlord paying the higher or additional rate of income tax would face an illustrative CGT liability of £17,866 on this gain, based on the current 24% rate and excluding any CGT allowances.

However, had CGT been aligned with income tax rates, the liability for a higher-rate taxpayer could have increased to £29,777 at 40%, an additional £11,911, equivalent to a 66.7% increase. For additional-rate taxpayers, a move to 45% could have seen their CGT bill climb to £33,499, an increase of £15,633, or 87.5%.

Welcome

Chris Mason, chief operating officer says: “The decision to reject calls to raise CGT is a welcome step in the right direction, but landlords need more than the avoidance of further tax increases. They need a stable and supportive environment that gives them the confidence to remain in the sector and continue providing much-needed rental homes.”

Landlords have urged the Chancellor to use his first Budget Statement to announce a shake-up of Capital Gains Tax to support the PRS. The NRLA proposes that CGT should apply to genuine gains, not gross increases in property values. It says the acquisition price of a property, and any qualifying capital expenditure should be adjusted for inflation before calculating the true real terms gain on disposal of a property.

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