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Homeowners’ tax relief open to abuse

Greater scrutiny of the capital gains tax exemption, which is used by people selling their main home, is required to help ensure that abuse of the system does not go unnoticed, especially given the fact that the number of buy-to-let landlords has increased sharply in recent years, according to the National Audit Office (NAO). 

The government’s spending watchdog said this week that the tax relief needs to be closely monitored to make sure that homeowners do not exploit or use it in ways “which parliament did not intend”.

The cost of exempting main residences from capital gains tax increased from £10.5bn to £18bn in the four years to 2015-16 as consequence of house price growth, adding significantly to the 13% jump in the cost of reliefs in the UK to £117bn over the past four years.

The NAO said the £1.7bn increase in the cost of principal private residence relief between 2014-15 and 2015-16 had not been explained by HMRC and the costs were not monitored by its policy team, adding that there was scope for the misuse of the relief, given its scale, complex rules and lack of reporting requirements, at a time when the volume of buy-to-let landlords had reached an all-time high.

“There are several restrictions and related reliefs which allow individuals to claim relief for two homes concurrently. This means more scrutiny may be needed to ensure people are following the rules correctly,” the NAO said.

But the HMRC pointed out that both property prices and transactions had increased significantly which explained the rise in the cost of the relief.

A quote from HMRC, published in the Financial Times, stated: “We ensure the right capital gains tax is paid through reviewing the data we hold and cross-checking it against third-party information.

“We also carry out targeted campaigns … where we use our own analysis to reach people we believe should have declared a gain but did not, and to raise awareness about the rules.”

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