Capital Gains Tax advice
By Effective Communication
Nigel John, managing director of Hern & Crabtree Estate Agents based at Llandaff and Heath – www.hern-crabtree.co.uk (029 2055 5198).
An issue that’s been in the news this week and caught my attention is that of Capital Gains Tax.
It’s a tax you don’t have to pay when you sell your own home but does come into effect if you’re selling a property or likewise a piece of land that isn’t classed as your main place of residence.
It’s actually a tax that relates to the profit you make rather than the amount you get for what it is you’re selling.
The usual types of property that would fall within the Capital Gains Tax category would be a holiday home – either abroad or in the UK – an investment or buy-to-let property and also business premises. If property is your sole trade then you’ll pay income tax rather than CGT.
With more and more people seeing little return on savings due to the falling interest rates and choosing additional property as a better investment for their cash, it’s something that’s becoming increasingly relevant.
The reason I mention Capital Gains Tax particularly this week is because of the debate that’s currently raging about a possible increase in CGT – from 18% as it currently stands, to bring it more in line with earnings, which could be as high as 40%.
This will certainly impact owners of a second property and the huge buy-to-let landlord sector and could have consequences for the recovering market if people stop selling property because of it – or equally if they rush to sell.
That said, I think we need to bear in mind that any increase will simply take the level back closer to what it was a few years ago – it certainly hasn’t always been set at 18%.
It has real relevance for the rental sector as even if people choose to hold onto buy-to-let investments, they could be left with no way of extending their portfolios and thus having to raise the rents they’re asking for those properties they do own. It could deter potential landlords from entering the sector but I would hope not as the sector survived pre-18% so there is a precedent.
People renting are often ‘would be’ first time buyers and it’s true that hitting them in the pocket could prevent them being able to raise the cash required for a deposit on their own home so hopefully this won’t have too much of an impact on rents.
If landlords do choose to hold on to their properties for longer in order to see what happens, this will also limit the stock available to the first time buyer market – all of which has an impact on the broader market of course.
The full plans for Capital Gains Tax are due to be announced in next week’s emergency budget and it will be interesting to see the outcome.
If any change to the tax isn’t implemented as soon as a decision is made the other outcome could be that rather than preventing people from selling, it could engender a sense of panic where those with assets to shift rush to release them ahead of any new measures being formally introduced.
There are over a quarter of a million second home owners in the UK and upwards of a million buy-to-let landlords and it would be a shame if this issue created yet more in-balance if the supply – demand ratio shifts once again.
The worry is that if it is raised significantly, the recent recovery that we’ve seen in house prices could stall but again I’d reiterate that we have been here before so let’s wait and see what happens.
Tags: Capital Gains Tax, Estate Agents, hern & crabtree, nigel john
