Aligning capital gains tax rates with those for income tax and a review of the current reliefs, allowances and exemptions could have a major impact on buy to let portfolios, second home owners, and potentially individuals receiving an inheritance, according to tax experts at law firm Royds Withy King.
The government this week announced a review of capital gains tax which may result in CGT rates becoming aligned to income tax rates.
The review is to be conducted by the Office for Tax Simplification with more detail expected in the Autumn Budget.
“It is easy to understand why the Government is looking to reform capital gains tax,” said Rod Smith, head of Royds Withy King’s private client team.
“Changes may be straightforward to implement, will affect those in line to receive a significant cash gain from a sale, and future revenues can easily be forecast, but it will be a bitter pill to swallow for those affected by any changes.
“Buy to let investors have seen tax advantages which they previously enjoyed, and which were made available to encourage capital investment, slowly eroded and further changes to capital gains tax will hit them hard if property portfolios are held personally.
“It should also be remembered that landlords are already facing Covid related requests for rent reductions or holidays.
“Second home and holiday home owners who wish to sell potentially face a CGT rate of 45 percent on any gain if they are an additional rate taxpayer, and their effective marginal rate can be even higher.
“This may leave holiday home owners choosing to delay a sale and hold on to their asset particularly if it is generating a rental income.
“And whilst not explicitly mentioned, there is a chance the Government will choose to remove the CGT uplift currently applying on death where beneficiaries inherit assets with an uplifted date of death base cost for any subsequent gift or sale of the asset.
“It is a valuable relief for beneficiaries, but we would not be surprised if that is scrutinised by the Chancellor following this review.”