According to a new OTS report, the amount of tax levied on capital gains could be raised by billions of pounds! The report which was commissioned by Chancellor Rishi Sunak has concluded that about £14bn could be raised by cutting exemptions and doubling rates, helping to recover Covid 19 borrowing.
The main losers to these changes would be people who own second homes, portfolio landlords with properties owned in their personal names and investments not shielded in ISA funds.
The report suggested that capital gains rates could be aligned with Income Tax rates as opposed to the current system of 10% for basic rate tax payers and 20% for high rate tax payers. They are also suggesting a reduction in your Capital Gains Allowance which currently sits at £12,300 PA. The report highlighted that around 50,000 people declared Capital Gains just under this threshold last year.
What could this mean in reality?
Most of us will not pay capital gains tax each year. 31 Million people pay Income Tax every year compared with 265,000 people who pay Capital Gains tax. The OTS report highlighted that most gains are concentrated on the most wealthy individuals and aligning the tax would bring more equality in terms of tax paid across the country. In many cases this will mean that may tax payers will not be affected by the change on a regular basis. However, they will be severely affected when selling investments or possible inheritance assets.
What could this mean for the Property Industry?
Further targeting of the Private Rental Sector (Private Landlords) is extremely risky as it is the second largest provider of homes in the UK and it is likely that the changes could cause a mass exodus from the sector. Furthermore the mass exodus would see the market flooded with properties, causing possible depression on house prices at a time where stimulus have been put in place to support the market. Currently if you make under £12,300 PA through property trading you would not have to pay additional tax, which could change, therefore affecting viability of future projects.
As property investors, it would be easy to feel like this is another direct attack on the industry that we all work in. Whilst we understand that Covid 19 has caused considerable damage to the UK economy, further targeting of the private rental sector feels unfair on top of recent changes. However with changes likely going forward in some form, we need to consider what opportunities this could bring to the industry and review our strategy accordingly.
The Treasury have responded to the report by stating “The government’s priority right now is supporting jobs and the economy. We thank the OTS for their independent report which will be considered in due course.”