Capital gains tax reform for landlords and second-home owners?
The Office of Tax Simplification (“OTS”), in a report commissioned by Sunak, has suggested aligning CGT rates with higher income tax rates, and reducing the threshold at which the tax kicks in.
Under the current rules, gains on residential property are charged at 18 per cent for basic rate tax payers; and 28 per cent for higher and additional rate tax payers. This rate would increase to 20 per cent for basic tax payers while higher and additional rate tax payers would be hit by rates of 40 and 45 per cent respectively. The OTS has also proposed reducing the threshold at which CGT becomes payable from £12,300 to £5,000.
It is obvious that the Treasury needs to find ways of plugging the fiscal hole created by the pandemic, and this could raise a substantial amount of tax while only affecting the relatively small number of taxpayers who pay CGT and tend to be from older and wealthier households. The OTS was at pains to stress that it was not asked to look at scrapping the CGT exemption on the sale of main homes which surely would be political suicide for a Tory government.
These proposals could however have unintended consequences on the property market, leading to second home owners and landlords holding onto their properties to avoid triggering the tax charges.
The Treasury has so far declined to comment on the report.
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