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What a Capital Gains Tax review could mean for homeowners

Everything you need to know about the Chancellor's capital gains tax review and what could change...

Capital Gains Tax

This week the government announced it was undertaking a review of the capital gains tax system to ensure it is “fit for purpose”.

The Chancellor has asked the Office of Tax Simplification for proposals “on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”

While the Treasury say this is standard practice, commentators have warned it could lead the way to “a tax grab” in the autumn.

“It would be naïve to assume the chancellor didn’t have his eye on tweaking taxes to refill his coffers,” Nathan Long, analyst at Hargreaves Lansdown, told the BBC this week.

What is Capital Gains Tax?

Capital gains tax (CGT) is payable when you sell an asset that has increased in value since you bought it. It is a tax on the profit you make.

In large, it applies to gains made on property and shares. The Office for Budget Responsibility forecast that in 2019/20 CGT would raise around £9.1bn, which is about 1.1% of all tax paid in the UK.

The rate varies based on a number of factors, such as your income and size of gain. For residential property, it may be 18% (if you are a basic rate tax payer) or 28% (if you are a higher rate taxpayer) of the gain (not the total sale price). It’s only the gain that is taxed.

Read more on capital gains tax and find an IFA to help you calculate yours

How could changes affect homeowners?

Currently, our main home (or primary residence) is exempt from CGT on the gains made when we sell. As a result, most of us will never have to pay CGT. According to the Resolution Foundation, only 0.5% of UK adults currently do.

But with this review, the government could look at removing the CGT exemption when homeowners sell their main home.

However, commentators suggest the hostility this would receive makes it unthinkable under a Conservative government.

It would also run counter to recent government changes aimed at getting the property market moving again, such as the stamp duty holiday.

But second homes and buy-to-lets may be a target for greater taxation and more acceptable politically. The CGT rate could be aligned with income tax rates – at 20%, 40% and 45% – meaning that the tax take on buy-to-let disposals would rise sharply. The knock on effect of this though, is that landlords and holiday home owners may sit tight rather than selling up, and the move may act to further stagnate housing transactions.

The government could also abolish or change the current £12,3000 annual CGT-free allowance.

Basically, everything is on the table, so watch this space! With a government manifesto commitment to not raise income tax, National Insurance or VAT, the Chancellor has very few options for raising the income needed to pay for coronavirus recovery measures. The government is running a consultation until 12th October, details of which can be found here

Or tell us what you think in the comments box below


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6 Comments

  1. I find it all quite depressing having provided good standard low priced rentals on 2 houses for 30 years and run a separate business at the same time 24/7 that the government can just pull the rug under your feet at any time with a tax grab and clobber your pension. Every time I want to sell they increase the capital gains tax and i have to wait again. I am sure i am not the only one despairing of this

    Comment by nick — July 24, 2020 @ 10:30 am

  2. This will lead to less. Rental properties on the market as landlords will not increase their portfolio

    Comment by Lorraine Meads — July 18, 2020 @ 7:02 am

  3. When I bought my buy to let, the CGT was high but would eventually be feathered to zero over the years the property was let out- this has now gone back up to 18%. I would like to sell due to old age but could not afford the CGT. If the government wanted more houses on the market they could reduce the CGT back to zero for people in my position who would be happy to sell to fund their old age.

    Comment by Raymond Peter Robson — July 17, 2020 @ 7:56 pm

  4. Having done the right thing, living frugally and buying a house without a mortgage, in which I lived and then let to provide for my old age, I’m now (potentially) going to be penalised for not making merry! Don’t know what to do!!!

    Comment by Monika — July 17, 2020 @ 6:01 pm

  5. We moved out of our very large barn conversion to a smaller property which we have been trying to sell ever since. Due to stagnation of the property market we will be hit heavily if CGT is applied to this when it eventually sells. We lived there for 20 years and I think he has to exempt properties which have been your home for 7 years or more. He should bear in mind that we as most of the country have had to pay full council tax on an empty property for the past 8 years.

    Comment by Carol — July 17, 2020 @ 4:36 pm

  6. So, some of us have had to make additional provisions for our pensions following the Equitable Life debacle and the raising of state pensions for women. One of the ways was to purchasing a rental property to make the shortfall and may yet come unstuck again!

    Comment by Wendy Miller — July 17, 2020 @ 12:29 pm

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