Buy to let market bouyed up by Capital Gains Tax Reforms

The radical simplification of capital gains tax (CGT) announced in this week’s pre-Budget report means owners of buy-to-let properties and second homes are set to be big winners.

The introduction of a single 18 per cent CGT rate from April 6 could means savings in tax of thousands of pounds when these property owners come to sell and in some cases could cut their bills in half. But employee shareholders and long-term owners of farmland and other assets are alokely to be hit by the overhaul of tax on profits.

The new flat rate looks like a tax cut for investors. Currently, CGT on most holdings is levied at 40 per cent for sales in the first three years of ownership, tapering to a minimum of 24 per cent after 10 years.

The sliding scale of CGT rates and indexation allowance are now being scrapped. This means that while many investors stand to gain, some could face substantially higher CGT bills on sales after April.

John Whiting of Price Waterhouse Coopers, says: “It’s the proverbial curate’s egg – you have to look carefully at which part of the egg you’ve got [to see whether it’s good]”.

Richard Proctor, of Grant Thornton, adds: “Generally, the change is extremely good news for property owners – and very short-term holders are undoubtedly big gainers. Buy-to-let investors and second home-owners who have bought in the property boom of recent years could be sitting on substantial gains currently taxable at rates as high as 40 per cent if they sold. So, for owners thinking of selling, it is a “no brainer” in tax terms to delay until after April when the 18 per cent rate comes in. Those who are really pessimistic on property prices will need to do their sums [to see whether they should sell before April anyway]. But prices would have to drop a lot to offset the tax savings [of waiting].”

Paul Willans, of Mazars says: “This will be manna from heaven for the UK’s investment industry… [it could mean] canny investors need never pay more than 18 per cent tax on their investment portfolios.”