Finance experts predict second homeowners and buy-to-let landlords will rush to sell their properties over feared changes to Capital Gains Tax.
Chancellor Rachel Reeves has indicated that some taxes will have to rise when she announces changes in her Budget in October.
After ruling out increases to income tax, National Insurance and VAT only a few options remain, including Capital Gains Tax (CGT), Pensions tax and Inheritance Tax.
There are suggestions the Chancellor will look to bring CGT rates into line with income tax as was done by Margaret Thatcher’s government in 1988.
Currently, the CGT charged on the profits made on a second property is 18 percent for a basic rate taxpayer, however this could go up to 20 percent.
More significantly, the CGT for a higher rate taxpayer on the profit would rise from 24 percent to 40 percent, while an additional rate taxpayer would see the figure rise from 24 percent to 45 percent.
Finance experts believe people who own holiday homes or a collection of buy-to-let properties could rush to sell before any changed to the CGT rates take effect.
The Government raked in £14.4bn from CGT in the 2022/23 tax year, triple the £3.8bn receipts in 2012/13. The £14.4bn liability was realised on £80.6bn of gains and was made by 369,000 taxpayers.
Adrian Lowery, financial analyst at wealth management firm Evelyn Partners, said there was an increase in CGT receipts on residential property disposals. He said this was largely because of an increase in buy-to-let landlords selling up as increases in mortgage rates pushed up costs.
Property investors have also been burdened by a tightening tax and legal environment that has made it more difficult to profit from a property portfolio in the last decade.
Shaun Moore, tax and financial planning expert at Quilter, said since 1993/94, the number of people paying CGT has surged by an “astonishing” 427%, rising from 90,000 to 369,000 taxpayers. Correspondingly, the tax revenue has “skyrocketed” from £60m to a staggering £14bn.
As Chancellor, Jeremy Hunt, slashed CGT tax relief from £12,300 to £3,000. This impacted investors looking to sell shares and other assets, including second homes.
Turning to the new Labour Government, Mr Moore told the FT: “While Rachel Reeves has committed to not raising headline tax rates, she has been tight-lipped on CGT. She has since conceded that tax changes might be necessary in the Autumn Budget to stabilise public finances.
“If CGT rates were aligned with income tax rates at the next Budget, it could lead to significant short- and long-term repercussions.
“Without anti-forestalling measures, there could be a rush to sell second properties, temporarily boosting housing market activity and prompting investors to reconsider their portfolios.”
He added: “At this point, no changes have been announced. Therefore, making decisions based on potential future legislation is not advisable unless selling a second home or buy-to-let property is already part of your plan.”
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