Sunak gets green light to drop CGT bombshell on landlords and property investors

Pushing Capital Gains Tax (CGT) rates up to the levels of income tax could spark a mass exodus of landlords from the market, property experts warn.

This follows a report from the Government’s tax advisers suggesting that Chancellor Rishi Sunak could bring CGT – currently 28% on residential property and 20% on other assets – into line with income tax so that higher rate taxpayers face a flat rate of 40 or 45%.

It also suggests reducing the annual CGT allowance threshold from £12,300 to £5,000 or less.

David Alexander, joint CEO of apropos, says this potential increase in tax payments is extremely risky and would have an enormously detrimental impact on the housing market, stifle growth and discourage investment.

“Any large-scale exit would flood the market with homes, depressing prices at a time when the property sector is in desperate need of support,” he says.

Paul Shamplina of Landlord Action, says: An increase in CGT is likely to prompt a flood of landlords selling up before the deadline, further reducing the supply of rental properties available to tenants.”

Income vs gain

Currently, doing up properties to sell them on is considered an income while holding onto property and then selling it for a profit is counted as CGT.

The Office of Tax Simplification’s (OTS) defends its recommendations, as it says not understanding the difference between these investing and trading activities can lead to non-compliance, where someone can incorrectly declare a capital gain rather than a trading profit.

“A greater alignment of rates would create a more neutral tax system, in which people were left free to make the right decisions for their business or family without the complexity of having to worry about unwittingly stumbling across the wrong side of a boundary,” it says.

It also acknowledges that landlords find it difficult not knowing their final CGT liability until they know their annual income tax liability, particularly when completing a 30-day tax return for residential property.

About £8.3bn of CGT was paid in 2017-18, compared with £180bn of income tax by 31.2 million individual taxpayers.

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