If the proposals were adopted in full, some Neath landlords would pay £6,000 less Capital Gains Tax than they would currently.
The government borrowed £394bn this
financial year (April ‘20 to April ‘21). This figure does not include the cost
of November lockdowns and support measures, which means the final bill will
probably be over half a trillion pounds. Ultimately these billions will
need to be paid back to cover the cost of Coronavirus.
The Office of Tax Simplification (OTS) published a report for
tax reform and, as was predicted by many in the press, the Government Dept
suggested the Chancellor contemplate readjusting current Capital Gains Taxation
(CGT) rates with a person’s own Income Tax rates. This would mean increasing
the rate of CGT for selling a buy to let property from 28% to 40% for high-rate
taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is
suggesting cutting the £12,300 annual CGT allowance.
This has led to many Neath buy-to-let landlords contacting me in the last few weeks, wondering if this is the time to exit the Neath buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.
With tax bills about to go through the roof, is this the time to leave the Neath buy-to-let property market?
Yet, like all
things, the devil is in the detail as Neath 2nd homeowners and Neath landlords may
well finish up having lower CGT tax bills with these new taxation proposals,
even though the CGT restructurings are being introduced to raise the
much-needed cash for the Government.
Apart from the
suggested cut of the annual CGT allowance and increase in the CGT percentage rates,
the OTS report also proposed reintroducing rebasing and indexation. In layman’s
terms, the OTS are suggesting all gains made before 2000 would not be
taxable (rebasing) and any capital gains would be calibrated to account for
inflation.
So, what would that actually look like for a Neath landlord? Let us assume we have a Neath landlord who bought a Neath buy to let property in 2000.
Under the current CGT rules…
- The average value of a Neath property in 2000 was £47,300
- Today, that same Neath property has increased in value to £137,400
- Meaning a profit of £90,100
- As our Neath landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill after the annual allowance would be £21,784
Under the new proposed CGT rules…
Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same Neath landlord would only pay £16,250 – a saving of almost £6,000.And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.
However, let us not forget the responsibility of the
OTS is to report on tax simplification opportunities, not to set Government taxation
policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy
to let property or second homes. Although, as time has always taught us with
investments, often the worse thing to do is to make impulsive decisions on what
MAY happen.
You have to remember, CGT only gets charged when you
sell or transfer your investments, and most people use their rental investments
to provide their income. If you did sell up, the best 90-day building society
accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck
with that) and Government 10-year bonds are paying a princely 0.324% pa … where
else are you going to invest to get the income Neath property investments
provide?
Property is an asset you can touch, feel and
ultimately understand. Maybe, this is the time (if you haven’t already) to take
portfolio advice on your Neath buy to let investments? Many Neath landlords do
so, whether they use our agency, another Neath agency or you manage your
property yourself. The service is free of charge, we don’t need to meet face to
face as we can do it over Zoom and it’s all without obligation. I promise to
tell you what you need to hear – not what you want to hear … what do you have
to lose?