Capital Gains Tax rise could hit sellers and landlords in Budget today
Speculation amongst property analysts ahead of today’s Budget (27 October) is that the industry may be hit with rising Capital Gains Tax (CGT).
Figures released by HMRC yesterday show how big an earner CGT is already.
Over the past five years HMRC receipts from CGT have risen 62 per cent from £7.1 billion in 2015/16 to £11.5 billion in 2020/21.
The data, compiled by accountancy firm Haysmacintyre and exclusively revealed on the Metro website, shows CGT receipts have continued to rise despite the pandemic.
On the profits on the sale of residential property that isn’t a primary residence, the CGT rate for basic rate taxpayers is 18 per cent; for higher or additional rate taxpayers, the level is 28 per cent.
Many analysts anticipate that Chancellor Rishi Sunak will go at least some way to addressing the recommendations of a review – which Sunak himself commissioned – into how CGT currently operates.
Over a year ago Sunak asked the Office for Tax Simplification to explore CGT and “identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.”
In particular, Sunak wanted a probe into “the acquisition and disposal of property” and “the practical operation of principal private residence relief”.
A report based on the review, issued 12 months ago, says about £14 billion could be raised by cutting CGT exemptions and doubling rates.
The report claims:
“The disparity in rates between Capital Gains Tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains.”
The OTS’s consultation – which received over 1,000 responses – revealed a range of areas in which Capital Gains Tax is apparently counter-intuitive and creates “odd incentives.”
Some respondents argued that CGT was a barrier to economic growth, others that it was a barrier to a more equitable society.
Only some 265,000 people pay tax on capital gains each year; the report suggests 50,000 of those arrange their financial affairs so the CGT liability comes under the £12,300 exemption allowance which each person has under current tax rules.
The OTS claims most capital gains are concentrated among relatively few taxpayers paying “proportionately less” tax than the rest of the population.
Other speculation surrounding this afternoon’s Budget concerns possible measures to prevent holiday home owners registering properties as businesses and thus reducing payments to local councils, as well as expected long-term measures to incentivise owner occupiers and landlords to make their properties more energy efficient.
You can see the Budget live from 12.30pm on BBC News, Sky News or stick with Estate Agent Today’s page for updates on property-related measures.
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