How Would a Rise in Capital Gains Tax Affect Residential Properties?

Year Published: 2021

Chancellor, Rishi Sunak, announced in his 2021 Budget that the Capital Gains Tax (CGT) rate would be left unchanged. From a property perspective, CGT applies to the profit made on the selling of buy-to-let properties and second homes. The threshold for CGT currently stands at £12,300, and the rate stands at 28% for higher rate taxpayers and 18% for lower rate taxpayers.

Despite this, the Office for Tax Simplification has called for these rates to be increased to bring them in line with income tax rates (40% at the higher rate and 20% at the lower rate). This was widely expected to materialise during the Budget announcement but, to landlords and second homeowner’s delights, it did not.

What Could Happen If CGT Were to Rise?

According to recent research undertaken by letting and estate agents Benham and Reeves, the average UK house price has risen from £168,703 to £251,500 and thus, the CGT rates on a buy-to-let property or second home currently stands at £82,798.

Based on this, selling a buy-to-let property or a second home during this current period of time could see a higher rate taxpayer pay approximately £19,739 and a lower rate taxpayer pay approximately £12,690 in Capital Gains Tax.

Should the changes from the Office for Tax Simplification come into force, we could expect to see these CGT figures rise to £28,199 for a higher rate taxpayer and £14,100 for a lower rate taxpayer.

This would also vary on the geography of the property, for example, those based in London, South East and East of England could expect to see even higher rates as properties in these areas cost more on average.

Can You Reduce Capital Gains Tax?

Unfortunately, it is not possible to reduce the percentage of CGT that is owed to a property, but it is possible to minimise the sum. In order to do this, it is worth taking into account the amount of cost incurred on the property either prior to buying it or during the course of ownership; this may include, legal fees, stamp duty and refurbishment.

For further guidance on Capital Gains Tax on property, or for any other Residential Property matter, please contact Tim Jordan on 0161 475 7614 or email [email protected].

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