From Robert Ulph on April 6, 2021
In July 2020, the Chancellor asked the Office of Tax Simplification (OTS) to carry out a review of Capital Gains Tax (CGT). It was widely anticipated that CGT would increase to help plug some of the financial gap left by the impact of Coronavirus. So, there was surprise in the private rented sector – and a sense of relief – last week when an announcement was expected, but CGT has been left unchanged.
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%.
Over 1,000 responses were submitted to the OTS review via an online survey and 96 formal written responses to a call for evidence. The review was also 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 at the time responses were being submitted. “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.”
This does not mean CGT for the private rented sector is protected and while no consultation was announced last week, there is a warning that letting agencies and landlords should continue to prepare for changes to the CGT system in the future.
The sector must carry on to lobby on what increases to CGT would mean to landlords as the last thing the private rented sector needs is more landlords selling up or investors discouraged from the buy to let market. The impact to housing would be significant.
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.