Around half (48%) of landlords admit they are worried about the potential increase to CGT, and I’m not surprised.
Under recommendations made by the government’s Office for Tax Simplification, higher rate taxpayers would have to pay 40% on the profit they make from buy-to-let or second homes, up from 28%.
Meanwhile basic rate taxpayers would have to pay 20% on their profit, up from 18%.
The idea is apparently for taxes to be more closely aligned with income taxes, which can rise as high as 45%.
The Office for Tax Simplification also called for a major reduction in the Annual Tax Allowance, which sits at £12,300 but could be lowered to £2,000.
The change to higher rate taxpayers would obviously be huge for those relying on capital appreciation.
Reaction
While you’d expect investors to be concerned about this change there hasn’t been much of an outcry.
As it stands the majority of landlords (57%) plan to stick with their investment whatever happens, with 23% taking a wait and see approach.
Around 13% are considering selling up, while 8% are currently in the process of doing so.
Perhaps the consternation will be higher if the government confirms the changes when Chancellor Rishi Sunak unveils the Spring Budget on March 3rd 2021.
Reaction from the public doesn’t seem too sympathetic to investors.
A poll by 38 Degrees Group, as published by The Mirror, found that three in five Britons are in favour of CGT being raised in line with income tax – so if the government goes through with the reforms it could be a somewhat populist move.
Conclusion
Are the changes likely to go through?
Well, the government is looking for ways to recoup some money after spending a significant amount on Covid measures like the furlough scheme, so it certainly seems possible.
Raising CGT by so much for higher rate taxpayers seems to fly in the face of what Conservatives typically stand for, but financial stability is another factor recent Tory governments have prioritised.
Perhaps we’ll see them take a middle ground approach, raising CGT taxes but not by as much as income taxes – we’ll likely find out next month.
Ryan Bembridge, Editor, PropertyWire
