According to leading housing market analyst Savils, there’s some credence to idea that the change to the Capital Gains Tax may in fact mean landlords pay out less when compared to what they pay currently.
Lucian Cook, head of research at Savills, pointed out in a recent blog that during the days when CGT and income tax were the same level, there was a form of relief for inflationary gains - in other words, CGT was not applied on all profits, only those in excess of one of the standard measures for inflation.
Cook goes on to reason that the Office of Tax Simplification’s new report may suggest that, if the government is to reform the tax, then it should also consider “reintroducing a form of relief for inflationary gains, that is, only tax the level of gain on an asset above and beyond general levels of inflation.”
Furthering his case, Cook goes on to state that any sort of increase in CGT under the Office of Tax Simplification recommendations would be offset by a reduced taxable gain for most landlords who had bought property since the start of the buy-to-let boom in the late 1990s. “In many cases, the tax payable could be less (not more) than under the current regime” he said.
The recent OTS report - commissioned earlier this year by the Chancellor, Rishi Sunak - suggests the CGT and income tax should be more closely aligned, potentially increasing the rate of Capital Gains Tax from 28 per cent to 40 per cent or 45 per cent for a higher rate tax payer.
It also suggested reducing the annual tax free allowance from its current £12,300 to as little as £3,000 – meaning more of any gain would be taxed.
This new take on what the CGT could mean for landlords is an interesting one during a time when everyone is feeling the pinch from the Covid pandemic, and could well encourage more people consider buy-to-let.