A website that describes itself as promoting “popular capitalism” is urging the government not to consider raising Capital Gains Tax on landlords and others in this month’s Autumn Statement.
A blog on the Cap X site says that whenever politicians are casting around for taxes to increase, one hoary old chestnut is the desire to increase CGT to the same rate as income tax.
“Sure as night follows day this misconceived and ill-informed idea has been floated as a potential component of the upcoming budget [on November 127]” it says.
The site explains how politicians often depict CGT as being paid largely or exclusively by the rich, whereas in reality many ordinary people are hit by the measure - and it cites one example as being “someone selling their buy-to-let because they need the cash.”
The site goes on to says that raising CGT leads to the so-called ‘lock in effect’ where people who would otherwise sell assets such as buy to lets, instead hold on to them in the hope that the tax falls eventually.
“International evidence shows that when CGT rates are cut revenue raised from the tax goes up, sometimes dramatically. For example, when the CGT rate in Ireland was halved the amount raised nearly doubled” explains Cap X.
And it says many gains which may be subject to CGT - whether at the current rate or a higher one - are not real gains at all thanks to the high level of inflation.
“Given our current inflation rate of 10 per cent, if an asset was bought for £100,000 and sold two years later the sale price would have to be at least £121,000 to avoid a loss being made. So the state would tax this entirely illusory ‘gain’, which only occurred because it failed to keep inflation under control. That’s just confiscation.”
Back in 2020, when Rishi Sunak was Chancellor, he commissioned a report from the Office for Tax Simplification which suggested the current maximum CGT rate of 28 per cent be raised closer to income tax, where the top rates are 40 per cent and 45 per cent in England and Wales. Buy to let landlords were likely to be among the biggest losers from any rise in CGT.
The OTS said the tax could be doubled, made simpler in its structure, and brought roughly in line with income tax.
"The disparity in rates between Capital Gains Tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains" the report claimed.
The OTS’s consultation - which received over 1,000 responses - revealed a range of areas in which Capital Gains Tax was apparently counter-intuitive and creates "odd incentives." Some respondents argued that CGT is a barrier to economic growth, others that it was a barrier to a more equitable society.
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I plan to sell my portfolio over the next 5 years . This would certainly be a barrier . I would just charge higher rents which I have not been doing and ride it out
Agreed, but then government will create rent caps….. they are after us either way….. but I agree on selling up as labour will be a nightmare.
The current punitive level of CGT is a barrier to selling. A great many of us bought when taper relief existed so the current extortionate level of CGT completely wrecked our retirement strategy.
At the last General Election even the Labour party wanted to restore indexation relief. Their policy was to tax any genuine gain at the marginal tax rate after any inflation element had been allowed for. 40% of any genuine gain is a whole lot more palatable than 28% of the unadjusted increase.
The fact we have been artificially put in the higher rate tax band due to Section 24 means we are already paying vast amounts of extra income tax every year. Charging CGT at the current rate is just counter productive greed.
If the government wanted to boost tax receipts they would significantly lower or abolish CGT on rental properties so there would be an increased number of sales. That would result in more SDLT and VAT as every element of the transaction charges VAT. It would create or maintain employment for mortgage brokers, lenders, estate agents, solicitors, removal companies, electricians, plumbers, kitchen fitters, carpet fitters, furniture shops, decorators, etc. All of which pay income tax.
It would also add stock to the housing market, mainly at the FTB end. That would then cut the UC bill as homeowners aren't entitled to any help with mortgage costs. A tenant with children can earn nearly £20K a year more than a homeowner with children before their UC entitlement stops due to the earnings taper.
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Wishful thinking!…. But I share your dreams
As previously said if you bought a property for x amount sold it in later years with the inflation rate added you didn’t make a profit at all but pay tax on inflation, never mind about all the expense you suffered and the lovely SD, your pounds are just worth less.
People who bought to supplement their pension in retirement would be in for a big shock to see whatever equity they had in there vastly reduced after higher tax.
Michael this is our position and its a very big hole.
Agree it should be scrapped or at least linked to inflation so only real gains are taxed. Govt aren't going to listen to some web site mind you. They have a black hole (that they created) to fill so they are searching for easy targets.
They would fill that hole a lot faster if they cut the CGT rate.
At 28% I won't sell anything other than properties with less than about a £60K gain. Maybe some of my ex Council flats except those tenants are long term and pretty much hassle free.
With indexation relief I would consider selling any of them depending exactly what the deal was.
I see a triple whammy… increasing CGT, a rent cap and periodic eviction bans…. We will be like a rat 🐀 in a trap. 😬
I can see no way forward as being a LL. House prices are either going down or plateauing. But not up. Rents are going to be more difficult to collect and more defaults. I know we say we can put the rent up. But I have a tenant who continually reports repairs that stops me so I am selling to overcome it. They can't afford more rent. Rent restrictions may well come too.
There’s talk of raising CGT to trap landlords too. But with all the rental reform it’s still worth getting out.
I have issued a S21 and my solicitor who checked it all and issued it said all was ok. Now they are saying it isn’t. I have had to overcome an agent’s failure to issue the prescribed info properly. Now I have the Tenant Fee Act where the agent took a holding deposit with a debit card and that included pence. Their other system did not include the pence received so this a led to a prohibited payment apparently. I have challenged my solicitor on this.
I say the above because S21 ‘works’. Although it’s been watered down giving me these headaches. I don’t trust the government to allow LLs to easily get their properties back with their reforms and new legislation. It will just be worse. The Tories are anti-landlords. Let’s not even mentioned Labour. This is another reason I am selling.
Couldn't have put it better. This is ny position on this note also I feel the longer we hold in the worse its going to be. I'd rather have less money than no money for my retirement
Huge sympathy for Nick!
And I agree with Shelley; that is how I am seeing the situation now.
Thank you Ellie.
I honestly fear losing my properties altogether. They say LL's can get the property back with a legitimate reason but it will involve court. Is that a year wait? I bet the bar will be set SO VERY HIGH that a LL now has to PROVE TO A JUDGE that you have a legitimate reason. Whos' property is it??????
They say reforms to the system will happen. I'm not confident. Only tenants and virtue signalling each other and the public is more important than LLs. We are at the bottom of the cess pit in society.
What is the point in paying to get EPC C by 2028 spend that money if by 2030 it has to be a B.
The way things are going whats the point in paying any money out to get to a C, might as well wait until 2028 then evict on the grounds that it's illegal to rent these properties surely a court would have to allow the eviction
2030 it'll need to be EPC B
Yep very likely
As I understand it, CGT was reduced from marginal income tax rates (20/40%) to 18/28% and indexation and taper relief were removed to simplify tax, and the CGT rates reduced to soften the blow of the removal of the reliefs. The result is that the longer one holds property, the higher the tax is (assuming property prices increase). The annual exempt amount hasn’t increased with inflation either.
Better to sell now before the CGT rates are put back to marginal tax rates as it’s unlikely the reliefs will be reinstated. And the exempt amount will likely be chopped too. Then landlords will be trapped into providing homes at higher costs and tighter regulation.
Incidentally, talking about only selling if the CG is less than £60k won’t get much sympathy from non landlords…
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