Chancellor requests review of CGT by the OTS

by Property 118

9:04 AM, 15th July 2020
About 2 months ago

Chancellor requests review of CGT by the OTS

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Chancellor requests review of CGT by the OTS

The Chancellor, Rishi Sunak, has requested a review of Capital Gains Tax (CGT) in an open letter to the Office of Tax Simplification (OTS). This could indicate the Chancellor is considering a future increase in the CGT levy in an attempt to shore up the UK’s finances.

However, this morning in a Sky interview, Secretary of State, Matt Hancock, confirmed there are no ‘current’ proposals to increase the wealth tax that would directly affect landlords more than most. The scope of the review will also include Principle Private Residence relief, but increasing tax on the sale of a main residence would be politically less popular than for second and investment homes.

The open letter written by the Chancellor to the OTS said:

“I would like the OTS to undertake a review of Capital Gains Tax and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses.

“I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible, as set out in the agreed terms of reference.

“This review should identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent. In particular, I would be interested in any proposals from the OTS 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.

“Thank you for your ongoing work in reviewing the tax system and striving to make it simpler, fairer and better.”

CGT is currently charged at 10% on gains basic rate taxpayers and 20% for higher and additional rate taxpayers, or 18% and 28% respectively where the gains are made on residential property.


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Comments

Laura Delow

10:27 AM, 15th July 2020
About 2 months ago

My understanding is an increase of 1% in CGT is equivalent to raising an extra £75m in tax. Not a lot unless you raise it to Income Tax levels which is more likely. I'd be more concerned if the regime of allowances, exemptions & reliefs is reviewed.
Given time I think the tax hikes will be Income Tax rates i.e. a 1% rise in BRT = £5.85bn extra tax raised vs 1% rise in HRT = approx >£1.5bn and a 1% hike in Add Rate Tax brings in just £210m - not a lot but a vote winner if hiked up. A £10 reduction in Pers Allowance = £730m. A 1% hike in Nat Ins for employees = £4.6bn & for employers = £6.8bn which is more likely as is leveling Nat Ins between employed/self employed. Low hanging fruit is abolishing HRT relief on pension contbs =approx £10bn & updating Council Tax bands not updated since early 1990's. Another frightener is if a form of Nat Ins aka Investment Income Surcharge is brought back in & a Wealth Tax which is highly possible even if a one off.
I appreciate we all have to put our hands in our pockets to help put our economy back on its feet, but I think we're in for a crucifying time beyond our worst nightmare.

David

10:41 AM, 15th July 2020
About 2 months ago

Of course Hancocks denial means yes capital gains tax will increase so write to your MP. CGT in the UK is one of the highest in the world and residential CGT is higher than other CGT so landlords are hit the hardest already. Landlords have received handouts from this government during Covid 19 so it should be up to those who benefitted to put their hands in their pockets.

Monty Bodkin

10:56 AM, 15th July 2020
About 2 months ago

Reply to the comment left by David at 15/07/2020 - 10:41
"Landlords have received handouts from this government during Covid 19"

Eh???

Simon Williams

11:15 AM, 15th July 2020
About 2 months ago

I seem to remember George Osborne, when Chancellor, saying that if they went beyond the current CGT 18/28% rates, they would probably raise less, not more, as there is a point at which people are discouraged from realising their gains. That is our best hope. the Government would love to get landlords paying more tax, but they know there are limits.

That said, it is almost inevitable that they will squeeze more out of us somehow.

In the days of Nigel Lawson, tax rates for CGT did mirror those for income tax, but this was heavily mitigated by indexation allowance that compensated for inflation and also you got investment taper relief whereby the longer you owned the asset, the more relief you got. so many property investors would have paid less tax than now. Lawson believed that CGT should not encourage people to hold assets only for short periods, which is what high CGT rates would do. It is not good for the economy when people are constantly churning their assets.

When comparing our rates with other countries, it is important to note that, unlike many countries, we are taxed even on purely inflationary gains right now. In that context, the rates are not generous.

silversurfer2017

11:41 AM, 15th July 2020
About 2 months ago

He could probably raise all the CGT rates by 2% without upsetting too many people.

Beaver

11:57 AM, 15th July 2020
About 2 months ago

If the recent forecast by the Bank of England that property prices could drop by as much as 16% is correct he's probably not going to raise much income by raising capital gains tax.

If he raises corporation tax by much he will dissuade investors from investing in the UK.

Anne Noon

12:51 PM, 15th July 2020
About 2 months ago

Reply to the comment left by David at 15/07/2020 - 10:41
I have not received any handouts from the govt as a residential landlord- what have I missed out on ? I cannot claim my residential portfolio as self-employment income as it is classified as investment income, so cannot claim that relief.
BBL have to pay it back with interest, and 3 months mortgag-free payents have to be paid back- all accruing interest. None of which classifies as 'Handouts'.
Most of my tenants , apart from ( out of 10 ) have all paid their rent in full, so I am very pleased on that front.
Anne Noon

Beaver

12:58 PM, 15th July 2020
About 2 months ago

Reply to the comment left by Anne Noon at 15/07/2020 - 12:51
I haven't had any "handouts" from the government either as the bounce back loans were only for LLPs and Ltd Cos.

My main concern being over the age of 55 is that the chancellor will attack pensions. For the first time this spring the value of pensions in the UK exceeded the value of UK housing stock. Pensions will have taken a hit because so many are invested in the stock market; but the Bank of England has also just forecast a 16% fall in house prices.

David

13:38 PM, 15th July 2020
About 2 months ago

should have read "landlords have NOT received any handouts from the government". Did you write to your MP? I suppose they could argue that they paid our tenants to furlough so we should be no worse off .I have also written to my MP concerning rumours that the triple lock will be removed. Reply being that the basic pension has risen by £1900 in the last decade with a 3.9% increase this year supported by free bus passes /prescriptions and winter fuel payments.

Jo Westlake

14:09 PM, 15th July 2020
About 2 months ago

If CGT was abolished or significantly reduced I imagine a lot of landlords would sell at least one of their properties. We may scale back or we may use the money to buy more houses. It doesn't matter which. It would set in motion a whole chain of events involving VAT and creating employment. Hard to quantify exactly what it would achieve but the list is lengthy:
VAT on just about everything - solicitors fees, valuers fees, removal fees, building materials, furniture, carpet, etc.

Extra demand for tradesmen. More business for kitchen and bathroom companies. More purchases of all the stuff people tend to buy when the move house - kitchen ware, cushions, paint, etc.

It doesn't matter if the house is for an owner occupier or a landlord. The transaction results in roughly the same boost to the economy either way.

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