Is Capital Gains Tax going to increase?
There has been a great deal of speculation about whether Capital Gains Tax will increase in the upcoming budget, which will be announced on 3 March 2021, leaving landlords concerned that they face paying more tax if they decide to sell-up.
The Chancellor Rishi Sunak will use his Budget announcement to try to address the nation’s finances and considering the ongoing financial impact of COVID-19 and the furlough scheme, it seems feasible that the Chancellor could opt to increase tax rates, including Capital Gains Tax, to recover costs. However, the Government will need to carefully consider how increasing taxes of any kind would impact on public spending and injecting some much-needed cash back into the economy.
Earlier this year the Government asked the Office for Tax Simplifications to look at whether Capital Gains Tax was fit for purpose. The OTS report, which was published on 11 November 2020, recommended a closer alignment of Income Tax and Capital Gains Tax rates.
Capital Gains Tax is traditionally lower than Income Tax and contributes significantly less to the UK economy.
As it stands, on the sale of second homes, the rates are currently 18 per cent for basic rate taxpayers and 28 per cent for higher rate taxpayers. The OTS recommendations, if implemented, would see the tax rate on Capital Gains Tax for buy to let properties rise to 20 per cent for basic rate taxpayers. The rate for higher rate taxpayers would rise to 40 per cent.
Tax and regulation changes have hit landlords’ profits over the past few years, following mortgage interest relief changes, the scrapping of the ‘wear and tear’ allowance and the introduction of the 3% stamp duty surcharge.
We will be keeping a close eye on these potential changes to CGT, and as always, we ready to guide our landlords through the ever changing letting process.
If you are looking to rent your property, or looking for any advice on the sale or purchase of an investment property, please do get in touch – we would be very happy to help!
Laura Gordon – your local lettings expert – 01895 625999 – laura@gibsonhoney.co.uk