Capital gains tax being aligned with income tax rates would leave UK landlords selling their properties £11,000 worse off on average, analysis from Quilter has found.
Quilter explained that most homeowners benefit from private residence relief, meaning they pay no CGT when selling their home, however landlords or those with second homes are liable to pay CGT on any gains following the sale of property.
Additionally, it pointed out that anyone who makes a gain after selling a property will pay 18 per cent CGT as a basic-rate taxpayer, or 24 per cent if they pay a higher rate of tax under the current rules.
However, the wealth manager and financial adviser warned that, if rates were aligned with income tax rates then a basic rate landlord or second homeowner would pay 20 per cent CGT and 40 per cent if they were higher rate taxpayers.
Quilter tax and financial planning expert, Shaun Moore, said: “Unless anti-forestalling measures are announced with any plans then we could see a surge in property sales as homeowners rush to sell their second properties before new legislation comes into place.
“This could temporarily boost housing market activity, and many people will reconsider their property portfolios, potentially shifting their investments to other assets with more favourable tax treatments.
“The truth of the matter is though; at this point nothing has been announced and unless selling a second home or a buy to let is already part of your plan then making decisions based on what might happen is not sensible.
“However, these figures do serve to illustrate how much more tax might have to be paid in the future should this policy proceed.”
Quilter pointed out this is a pressing issue due to the commitments from the current Labour government as, while promises to change the rate of CGT was absent from Rachel Reeves’ recent speech, she did reveal other measures to close the £20bn funding gap.
However, there have been reports that further tax changes might be required to shore up public finances.
“During Labour’s election campaign the party was tight lipped on its plans surrounding CGT,” Moore added.
“While senior Labour figures were forthright in their conviction that the party would not raise national insurance or income tax, no one was willing to get drawn on what it might do to other taxes such as CGT.
“If plans such as aligning CGT with income tax rates do become a reality, then we could see some significant repercussions in the short and long term.”
tom.dunstan@ft.com
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