Landlords welcome CGT freeze in the Budget as Chancellor decides against rise that could have resulted in an ‘avalanche’ away from buy-to-let
- Chancellor did not increase CGT in line with income tax as many expected
- Experts say the decision prevented an ‘avalanche’ away from the sector
- Deadline to pay the tax when selling a property was also doubled to 60 days
- Landlords said paying in time had been challenging in busy property market
Portfolio buy-to-let landlords have breathed a sigh of relief, as Chancellor Rishi Sunak decided not to increase capital gains tax in today’s budget.
There were concerns in the sector that a tax hike, which had been rumoured in the days and weeks leading up to today’s speech, would prove a tipping point for landlords and prompt them to sell their portfolios.
This, they said, would have resulted in a further reduction in available rental homes in what is already an undersupplied rental market.
Landlords have swerved a tax increase and have also been given more time to pay a CGT bill
Richard Davies, head of lettings at London estate agent Chestertons, said: ‘The tax rise could have presented the final tipping point for landlords to sell their portfolio.
‘The avalanche effect of this would have meant a subsequent decrease in rental properties during a time when UK tenants are already facing a shortage of suitable homes within their budget.’
In a move that has been welcomed by the sector, the Chancellor also relaxed the deadline in which they must pay the tax after selling an investment property or second home.
While previously the bill must have been paid within 30 days – a change that was only introduced last year – that timeframe has now been doubled to 60 days.
Angus Stewart, chief executive of online buy-to-let mortgage broker, Property Master, said: ‘More time to report and pay capital gains tax on the properties they sell will be welcomed by landlords.
‘I suspect this has come as much out of the operational challenges of following these new rules which came into force last year.
Capital gains tax: What is it and who pays?
People pay capital gains tax when they dispose of property that is not their main home, as well as on their main home if they have rented it out, used it as a business or if it is very large.
They also pay it on shares that are not in an Isa or Pep, business assets and personal possessions worth £6,000 or more, excluding cars.
However, they only have to pay the tax on gains above the tax-free allowance, which is currently £12,300.
Higher or additional rate taxpayers pay 28 per cent tax on gains from residential property, and 20 per cent on other assets.
Basic rate taxpayers pay 18 per cent on residential property and 10 per cent on other assets, as long as the value of their gains does not take them in to the higher tax band for that year.
‘Solicitors and conveyancers have been dealing with a record workload so supporting landlords meet what was a very short deadline will have been a struggle.’
He continued: ‘Other than that so far today’s Budget looks to be largely neutral in terms of landlords which given the pressures they are facing from recent tax hikes and now rising interest rates will be a relief.’
The new deadline is in place from today, and applies to overseas landlords as well as UK residents.
The 30-day timeframe had been a bugbear of landlords, especially in the last year as the property market has been extremely busy and professionals such as conveyancers have had long backlogs of work.
This has led to some struggling to meet the deadline.
Dominic Agace, chief executive of estate agent Winkworth, said: ‘I think it is a practical solution, providing landlords with a bit of respite.
‘This is a sensible solution to an overzealous tightening of the payment terms to 30 days, which could be for a capital gains payment on a complicated transaction involving multiple different fees to be paid.
‘On the face if it, 30 days from completion should be sufficient but there are plenty of unforeseen circumstances where a 30- day deadline has caused issues, especially in a buoyant property market where conveyancers are in demand and delays can be very common.’
Ahead of the Budget, it had been speculated that Sunak may decide to bring capital gains tax more in line with income tax, which would mean 20 per cent for basic rate taxpayers and 50 per cent for those on the higher rate.
This had been recommended in a report by the Office of Tax Simplification.
Landlords also welcomed changes to the Universal Credit taper rate, which will be cut from from 1 December 2021.
It means recipients will see their Universal Credit reduced by 55p, rather than 63p, for every pound they earn from paid work above their specified allowance.
They said it would help lower-income tenants to pay their rent – though the £20 a week Universal Credit bonus introduce during Covid has been taken away.
Ben Beadle, chief executive of the National Residential Landlords Association, said: ‘Today’s announcement is welcome news for those private tenants who have struggled to afford their rents throughout the pandemic, despite private rents falling in real terms.
‘However it does not undo the damage that previous decisions to freeze housing benefit rates in cash terms will cause.’