Capital Gains Tax Increase On Sale Of Rental Homes Benefits HMRC

As tax changes for buy-to-let investors start to bite, landlords are reducing their portfolios, meaning bumper Capital Gains Tax (CGT) payments for the taxman.

HM Revenue and Customs (HMRC) has released figures showing record CGT of £9.2bn was paid in the 2018/19 financial year, up from £7.8bn in the previous year. Analysis of the tax receipts by financial advice firm NFU Mutual suggests that the Treasury could clear up to £8.8bn in the current tax year.

CGT is paid on profits made when selling assets such as second properties, stock, shares, and businesses. The first £12,000 of profit is exempt from tax, but above that figure, basic rate tax payers are charged CGT of 18 percent on the sale of a second property. Higher or additional rate tax payers are liable for 28 percent.

With landlords also facing a reduction in higher rate tax relief on mortgage interest, many are assessing how profitable property ownership is. Sean McCann, a chartered financial planner at NFU Mutual said:

“Landlords are being caught in a very effective pincer movement from the taxman. From one side the higher rate tax relief on mortgage interest is gradually being phased out and making letting out properties less profitable. From the other side, landlords looking to sell buy-to-let properties are being squeezed with an extra 8 per cent capital gains tax.”

NFU Mutual also highlighted the Office of Budget Responsibility’s (OBR’s) estimate that CGT receipts for next year could hit £9.9bn. McCann said:

“A large chunk of these receipts will be from people selling houses and flats they’ve been renting out.  In doing so, they are hammered by an extra 8% surcharge on standard rates of capital gains tax.

“The OBR forecasts show receipts increasing sharply to £13.3bn in five years’ time, which suggests that more and more buy to let investors are expected to unload properties as tax changes bite.

“The slashing of tax relief on mortgage interest payments means that for a growing number of landlords, the figures no longer add up. Many have enjoyed rising property prices over many years and will seek to cash in, providing a tax bonanza for the Government.”

Further Treasury CGT gains are coming from strong stock market performance and sale of businesses to overseas buyers while the pound remains weak.

As a conveyancer, what impact will this have on the property sector? do you think landlords will continue to reduce their portfolios over the next few years?

1 Comment

  • test

    What about a homeowner who owned a property as his/her principle residence but subsequently sold/passed/transferred on that property, without ever having used said property for rental purposes during ownership, after having bought another property which became his/her principle residence.

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