If the Office of Tax Simplification’s proposals to increase capital gains tax (CGT) is introduced, buy-to-let landlords and second homeowners could see the amount they owe increase by as much as £24,000 ($33,153), should they decide to sell.
CGT is tax paid on the profit of an item sold that has increased in value and applies to gains made on the sale of second homes and buy to let properties, but not initial households.
Currently, the rate of CGT stands at 18% for basic rate taxpayers and 28% for those in the higher rate threshold, with tax exempt on the initial £12,300.
The Office of Tax Simplification has called for CGT to increase in line with income tax rates to 20% at the basic rate and 40% at the higher rate, while also lowering the initial amount exempt to £2,000.
Research from estate agent Benham and Reeves shows that in the last decade, the average UK house price has increased from £168,703 to £251,500, which means the capital gain of a second home or buy-to-let investment during that time is £82,798.
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.
However, should the changes be introduced, 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 hike of £8,460.
London’s landlords would be worst hit, the report said, and based on property price appreciation in the last decade, a hike in CGT would see basic rate taxpayers paying nearly £4,000 more when they come to sell, climbing by £23,810 for those at the higher tax rate threshold.
Those paying a higher rate of tax in the South East and East of England could also see the cost of CGT owed on their investment climb by more than five figures, increasing by £13,206 and £12,958 respectively.
“The proposed changes from the Office of Tax Simplifications would act as nothing more than another nail in the coffin of the buy-to-let sector, in particular," said Marc von Grundherr, director of Benham and Reeves.
"Landlords and second homeowners are already paying a substantial sum on their investment due to the increased value of bricks and mortar. A further increase in capital gains rates is nothing more than a blatant attack on them, especially those in higher tax thresholds," he added.
He said the Government seems to target landlords and second homeowners as the cause of the current housing crisis but "the reality is, their failure to build enough homes is the driving cause and so perhaps this should be their area of focus.”
The report noted that while homeowners who will be impacted can’t reduce the percentage of tax owed on the capital gain of their investment, they can minimise the sum.
By taking into account costs incurred on the property, either when purchasing it or during ownership, they can boost the ‘initial cost’ of their investment and reduce the capital gain of any price appreciation, it said.
Costs included in this range from legal fees, stamp duty and mortgage broker fees to other costs such as the refurbishment of the property and the addition of more space.
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