Landlord and property

Changes to Capital Gains Tax

As the financial year comes to an end and the dust settles on George Osborne’s fifth budget, many professionals will be anticipating [financial changes coming in to play in April that will have an impact on their business.

Of particular significance to letting agents and landlords are the changes to Capital Gains Tax (CGT). There have been many changes to CGT since 2007 and there will be a raft of further changes this year and into 2015.

What are the proposed changes to Capital Gains Tax?

Created in 1965, Capital Gains Tax is due when you sell something valuable (i.e. a property); it taxes growth in value/profit between the date acquired and the date sold. Currently, CGT rates are paid at 18% or 28% - 28% is paid if you pay income tax at a rate of 40% or more.

Therefore, CGT has to be paid when a landlord sells part of their portfolio. Over the years, changes to CGT legislation have had varying effects on the fortunes of private landlords and it seems the latest changes will see landlords having to pay more tax.

What do the NLA have to say about that?

The National Landlords Association (NLA) has previously stated that due to CGT, ‘private-residential landlords are faced with a considerable barrier to disposing of property, hindering continued investment in their business, reducing the flexibility of the PRS (Private Rented Sector).’

The Private Rental Sector-centric independent body has also stated that: ‘It is the NLA’s belief that landlords selling property and reinvesting the funds released should be able to do so without being presented with a significant CGT bill.’

Who will be affected by the changes?

There were a number of residential property changes announced in George Osborne’s Autumn Statement; one regarding Capital Gains Tax is the tax exemption period being reduced. Usually, the last 36 months before a sale are exempt from CGT, but from April 6th 2014 the exemption period will be halved to 18 months. It’s feared that these changes may discourage prospective landlords from entering the Private Rental Sector and force existing landlords to refrain from expanding or reducing their current portfolio.

What’s more, due to the small size of their portfolios (usually only one property), ‘accidental landlords’ are likely to significantly feel the tax hike, which will subsequently impact on letting agents, as many accidental landlords might be inclined to stop renting and look to sell up before getting hit with new charges from the tax man.

When have they proposed these changes?

That being said, the changes have been put forward with the best intentions; to raise funds for new homes. The government are expected to make an extra £360m from the tax between 2015 and 2019, which will be reinvested into the new homes sector, according to George Osborne.

Further legislation regarding CGT is also being introduced for overseas homeowners and property investors from April 2015. Housing charities are said to be welcoming both sets of changes as they will help to free up more property stock, appeasing rising demand.

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