|The Office for Tax Simplification’s report on Capital Gains Tax makes for potentially sobering reading or buy-to-let landlords.Published on the 11th November, two recommendations in particular stand out:|
• The harmonisation of Capital Gains Tax (CGT) rates with Income Tax rates, meaning that those that pay the higher rates of income tax, could also pay Capital Gains Tax at 40% or even 45%;
• The reduction in the annual exemption to a level of £2,000 to £4,000 from the current £12,300.
Even taking into account the surcharge applied to the disposal of residential properties, this could see the rate of CGT rise by 12% for Higher Rate taxpayers, while the exempt amount could drop by up to £10,300. A gain of £250,000 could incur CGT of £99,200, up from £66,556 today.
With public sector net debt breaching £2.0 trillion (Source: Office for National Statistics Statistical Bulletin, 21st August 2020) for the first time in July this year, thanks to the extraordinary measures taken to combat the economic effects of coronavirus, the Chancellor will be looking at ways to foot the bill in the months ahead.
Coupled with a Tory Party Manifesto pledge not to raise the rates of Income Tax, VAT or National Insurance, and ‘austerity’ looking like a policy from a bygone age, this leaves other forms of taxation firmly in Rishi Sunak’s crosshairs.
|I have long argued that any investment in residential property, outside of purchases for personal use, should be done on the basis of a cold-eyed analysis of the financial returns. As well as the entry and exit costs – conveyancing, furnishing, Stamp Duty Land Tax, estate agents and Capital Gains Tax – this should include consideration of management fees, administrative costs, void periods, wear and tear, insurance etc.|
By taking all of these into account, a clearer comparison can be made between the total return on the property investment being considered and that available on other asset classes.
To this should then be added the administrative burden associated with owning a rental property, its obvious lack of liquidity – you can’t just sell the kitchen if you need to raise funds – and the absence of any Income Tax relief on the rent received.
The OTS report should perhaps be the catalyst for a reassessment of the overall attractions of the buy-to-let market.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.