Capital Gains Tax Changes. Landlords Could Save Money!

By Daren Cope

We all know that, at some point, the £394bn that the Government has borrowed so far this financial year (April ‘20 to April ‘21) has to be repaid. This figure does not include the cost of November lockdowns and support measures, which means the final bill will probably be over half a trillion pounds, these billions will ultimately need to be paid back to cover the cost of Coronavirus.

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Department suggested the Chancellor contemplate readjusting current Capital Gains Tax (CGT) rates with a person’s own Income Tax rates.

This would mean increasing the rate of CGT for selling a buy-to-let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is also suggesting cutting the £12,300 annual CGT allowance.

This has meant that many Derby buy-to-let landlords have been contacting Professional Properties in the last few weeks, wondering if this is the time to exit the Derby buy-to-let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.


Is this the time to leave the Derby buy-to-let market?

Not necessarily! Like all things property related, the devil is in the detail and Derby 2nd homeowners and landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government.

As with most media reporting, the emphasis is solely on the negatives. Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.

So, what would that actually look like for a Derby landlord? Let us assume we have a Derby landlord who bought a Derby buy to let property in 2000.

Under the current CGT rules

  • The average value of a Derby property in 2000 was £67,400
  • Today, that same Derby property has increased in value to £202,900
  • This means a profit of £135,400
  • As our Derby landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill would, after the annual allowance be £34,468


Under the new proposed CGT rules

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same Derby landlord would only pay £26,934  – a saving of almost £8,000.

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.


Think Before You Act

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy.

None of us have a crystal ball on what Rishi Sunak will do with CGT on buy-to-let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen.

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide them with income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster and Government 10-year bonds are paying a princely 0.324% pa… where else are you going to invest to get the income property investments provide?

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time, if you haven’t already, to take portfolio advice on your buy-to-let investments and get in touch. Many Derby landlords do so, whether they use our agency, another agency or they manage the property themselves.

The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation.

I promise that our experienced team of letting experts will tell you what you need to hear – not what you want to hear. What do you have to lose?

If you fancy a chat, pop your details below and we’ll be in touch!