Support, Advice and Experience within the Property Market

Capital Gains Tax Review Must Support Landlords

From Robert Ulph on November 20, 2020

The issue of Capital Gains Tax (CGT) has arisen again as a recent consultation could be looking to make changes and it is interesting to see what this could mean for private rented sector landlords.

In July 2020, the Chancellor asked the Office of Tax Simplification (OTS) to carry out a review of Capital Gains Tax, to ‘identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent’.

The OTS is the independent adviser to government on simplifying the UK tax system and aiming to improve the experience for all those who interact with the system, both taxpayers and HMRC. The OTS makes recommendations for the government to consider but it does not implement changes.

Buy to let (BTL) property owners fall into one of the three broad groups who are liable for CGT, as if you sell a BTL property for more than you bought it, you make a ‘capital gain’ which is subject to CGT. The rate at which you pay CGT following the sale of a BTL property depends on your taxable income. If you are a basic rate taxpayer with an income of £50,000 or less, the rate is 18%. Higher rate taxpayers with an income of £50,001 or more pay 28%.

CGT does not apply to the sale of your home (your main residence) as this comes under Private Residence Relief (PRR) rules and if you are a landlord, PRR will also apply if the property you are selling was at some stage your only or main residence. For example this means that if you had lived in your home for 20 years, then let it out for a year before selling it, you will get tax relief on the years that the property was your main residence, and not have to pay CGT on the full 21 years of increased value.
The OTS review has attracted interest which includes over 1,000 responses to an online survey and 96 formal written responses to a call for evidence, supported by an extensive range of meetings with interested parties with a wide variety of perspectives.

“Letting agents and their landlords play a key role in maintaining a strong and thriving private rented sector,” commented Timothy Douglas, Policy and Campaigns Manager, ARLA Propertymark. “To this end, the current system of Capital Gains Tax does not paint the full picture of costs and responsibilities. Given recent changes to mortgage interest relief, the wear and tear allowance, and the ongoing impact of Covid-19, the UK Government must tread carefully with any plans to change Capital Gains Tax as this could dramatically reduce the supply of rental properties.”

As always, I will keep you up to date with any developments, but if you have any questions on these issues or anything else you need advice on in the local property market, please call me as I am always happy to help.