Budget: Capital gains tax rise lets buy-to-let landlords off hook

Published 23rd Jun 2010

Buy-to-let sector breathes sigh of relief as rise in capital gains tax announced in today's emergency budget is less than originally feared


Many buy-to-let landlords and second homeowners will be breathing a sigh of relief after the much-trailed increase in capital gains tax (CGT) proved more modest than some had feared. However, affordable housing campaigners accused the new chancellor of "bottling it".

George Osborne announced that higher-rate taxpayers will face a 10% rise in the amount of CGT they pay. From midnight tonight the rate at which the tax is charged on non-business assets will increase from 18% to 28% for higher earners. It had been widely predicted that it would increase to 40% or even 50%.

In recent weeks some estate agents have reported being deluged with inquiries from panicked investor landlords hoping to offload properties before the feared rise took effect, which would have slashed the profits made by some individuals.

Ronnie Ludwig, a partner at accountancy firm Saffery Champness, said: "For higher-rate taxpayers the news that the chancellor has increased CGT to 28% rather than the widely expected 40% will be greeted with a mixture of surprise and relief."

He added that many people who had expected the tax to increase by more than today's rise rushed through sales of second homes or share portfolios. "Those individuals may now rue that decision," he said.

Liam Bailey, head of residential research at estate agent Knight Frank, said there would not now be a sudden sell-off of second homes or investment properties, which might have destabilised the market. He added that the new rate "takes us back to a similar rate to where we were under the pre-2008 rules, when taper relief was able to reduce a 40% headline rate of CGT to 24%". He insisted that despite the changes the argument for property investment still looked strong.

For a higher-rate taxpayer who bought an average priced home 10 years ago as a second home or investment, and who sells it tomorrow, the changes mean they will now pay an extra £7,500 in CGT compared to yesterday, according to Yolande Barnes, head of residential research at estate agent Savills.

However, many commentators said that despite the sighs of relief the changes were not good news for the investor landlord sector. Alison Beech, business relationship director at estate agent Spicerhaart, said: "Though it is not as high as expected, the increase in CGT to 28% will have a negative impact on the buy-to-let market. Potential buy-to-let landlords could be discouraged from investing, which will impact the market in the long term."

The national affordable housing campaign group PricedOut said it was deeply disappointed the government was not raising CGT to the same level as income tax, something it believed would have helped dampen speculative investment in the housing market.

"The government has instead preserved the disparity … Basic taxpayers will pay a CGT rate of 18% compared to their 20% levels of income tax, while higher-rate taxpayers will pay a CGT rate of 28% compared to levels of income tax at 40%," said group spokeswoman Katy John.


The chancellor also announced cuts to one of the schemes designed to help struggling households avoid repossession.

The government-funded Support for mortgage interest (SMI) scheme helps struggling homeowners by paying the mortgage interest on a loan of up to £200,000 for those who claim income support, jobseeker's allowance or pension credit. The standard interest rate used to calculate SMI has been frozen at 6.08%, a level which was set in the 2008 pre-budget report.

The chancellor said that in order to "put SMI on a more sustainable footing and to better reflect mortgage costs" it will be paid at the level of the Bank of England's average mortgage rate from October this year. The Bank said it was not yet clear which average mortgage rate the chancellor was referring to, but it looked likely to be the average effective rate, which is currently 3.67%.

According to the Financial Inclusion Centre this could cost affected households about £130 a month based on a £100,000 mortgage.

Meanwhile, a controversial proposed tax on furnished holiday lets which had put at risk thousands of small UK family businesses and jobs is to be scrapped.

In a surprise boost for the tourism industry, and also for second home owners, landlords who let out holiday accommodation will be able to continue to offset the cost of furniture and fittings against tax. They will also pay a reduced rate of capital gains tax when they come to sell.

The previous government had planned to withdraw the tax advantages, believing the treatment given to UK properties was not compliant with European law.

Frank Nash, a senior tax partner at London chartered accountants Blick Rothenberg, said: "In our experience, holiday property owners who actively let their properties are running a business, and it is only right that the chancellor has scrapped the tax increases announced by the previous government."

Source: ' Guardian '

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