Industry Speculation On Impact Of CGT

Since it has been revealed that the Chancellor, Rishi Sunak has asked the Office of Tax Simplification to review Capital Gains Tax (CGT), there has been a bit of discussion as to what will the industry will think will happen.

With the review currently underway, no announcements are expected until later on this year, when the Chancellor makes his autumn statement.

It is expected that CGT will be changed, to help the government receive more revenue, as a result of helping the country weather the coronavirus storm.

Some people are speculating whether CGT will be applied when homeoweners sell their first homes, and not just buy to let or holiday properties.

CGT is already 10% higher for the sale of buy to lets and second homes – at 18% and 28% for basic and higher rate taxpayers – than it is for investments.

In April HMRC changed its rules requiring UK residents to submit CGT returns, and pay any tax due, within 30 days of completion of a property sale.

Private residence relief means that nobody pays CGT if they sell their owner occupied main home for more than they bought it; this is worth around £26.7 billion according to the National Audit Office.

Svenja Keller, Head of Wealth Planning at Killik & Co, said:

“The stamp duty holiday is to encourage a kick-start in the housing market, whereas CGT on first homes could counter that, particularly as some are sitting on very large gains in their main homes … Tax rates have been low for many years, and therefore it seems to be an obvious source of income for the government to consider when looking at how to recuperate the cost of Covid-19.”

Rachel Griffin, Tax and Financial Planning Expert at Quilter, told the Financial Reporter:

“Without the [main homes] relief some people would have a massive tax bill which they could only afford by taking some of the equity from a property sale transaction and using it to pay HMRC. That would subsequently impact their ability to move up the ladder so it could slow transactions and put some people off moving. The Chancellor has only just introduced temporary stamp duty relaxation in order to grease the wheels of the housing market, so it is hard to see him taking steps that could disturb property sales.”

David Alexander, joint Managing Director of Apropos, worries that any changes to CGT could adversely affect the property market.

He said:

“While this is only a review and may result in no changes to CGT, it it clear that the Chancellor sees potentially rich pickings among the wealth accumulated in property.

“He needs large amounts of money to fund the government response to coronavirus and one of the easiest targets is always property as it can’t be hidden, and it can’t be taken abroad. However, to tax the value accumulated in an individuals’ home would surely by political suicide. Therefore, the assumption must be that he is looking for income from second homeowners, landlords and property investors.”

He added:

“It is important, at this difficult time, to develop strategies to pay for the pandemic which both encourage economic growth whilst also increasing government revenues.

“Raising CGT rates feels like a move that would stifle growth, discourage investment, and depress the housing market. I think people need to feel they have an asset that is worth something and property has always been a particular British obsession.

“To put a cap on that value may disillusion many.”

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