Budget: Capital Gains Tax Rises (CGT): How changes affect landlords letting property

The chancellor George Osborne has announced new changes to the capital gains tax system. A new rate of 28% for higher rate tax payers comes into effect today. Lower rate tax payers will continue to benefit from a rate of 18% and the Annual Exempt Amount for CGT this year remains at £10,100 and will continue to rise with inflation in future years.

 

The news comes as some relief to many property landlords and buy-to-let property investors, who, amid the hype leading up to the emergency budget, feared a steeper rise to 40 or even 50%. With no plans for a more dramatic increase in rate to come-in in the future, property investors and landlords will do well to continue to hold their property assets while the housing market continues to show steady property prices increases, and while rental values and yields continue to improve with increasing tenant demand.

 

The robust and buoyant Cambridge property rental market continues to provide promising opportunities for investors, and landlords who let a second home, with accelerating growth in demand from tenants seeking property to let in the city, and a resulting upward pressure on rents, and improving returns for landlords.

 

In his budget speech to Parliament, George Osborne said:

 

‘Mr Deputy Speaker, one of the most chaotic areas of tax that the new Government inherited from its predecessor is the capital gains tax regime.

 

Some of the richest people in this country have been able to pay less tax than the people who clean for them. That is not fair - and it stems from the avoidance activity that has exploited the wider gap between the rate of capital gains tax and the top rates of income tax. These practices are costing other taxpayers over £1 billion every year. It is therefore right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system.

 

I have listened carefully to everyone's views and considered all the options. My concern has been to balance the competing demands of fairness, simplicity and competitiveness - and I believe my decision gets that balance right.

 

Low and middle income savers who pay income tax at the basic rate make up over half of all capital gains taxpayers. They will continue to pay tax on their capital gains at 18 per cent. From midnight, taxpayers on higher rates will pay 28 per cent on their capital gains. I have also decided that the Annual Exempt Amount for capital gains tax will remain at £10,100 this year and will continue to rise with inflation in future years.

 

I am acutely aware of how important it is to protect the incentives to succeed in business and to innovate. So to promote enterprise, the 10 per cent capital gains tax rate for entrepreneurs, which currently applies to the first £2m of qualifying gains made over a lifetime, will be extended to the first £5m of lifetime gains.

 

I asked the Treasury to examine what would happen if we had increased the rate much further beyond 28 per cent, and their dynamic analysis showed that this would have resulted in smaller total revenues. I also considered in great detail the options presented to me for introducing tapers or indexation allowances, and concluded that the complexity and administration involved would have been self-defeating.

 

The changes I have made mean that:

  • the capital gains of the majority of taxpayers are protected;
  • we have a top rate that is in line with our international competitors;
  • we keep the system simple and easy for any taxpayer to understand;
  • and we reduce the incentive to convert income to capital gains.

 

It is revealing that the great majority of the almost £1 billion of extra receipts we expect to see as a result of this change will come from additional income tax payments. I believe this is the right way to reform the taxation of capital gains.'

 

 

« back