The latest budget from the Chancellor of the Exchequer was watched with increased interest by those heavily invested in the property market. After last year’s announcements regarding stamp duty hikes and tax relief cuts, George Osborne had his work cut out to re-enamour himself and his government with landlords up and down the country.
While Mr Osborne did indeed offer some investors a huge boost by significantly slashing Capital Gains Tax, landlords were left more than just a little miffed by the inclusion of a surcharge that will be levied against the sale of residential property.
The cut in capital gains is a hearty eight per cent and has been welcomed by many. For those who operate on the basic rate of tax for capital gains, this means a reduction from 18 per cent down to 10 percent, while those in the higher bracket will only have to pay 20 per cent as opposed to the pre-budget 28 per cent.
The kicker for landlords, however, is that any gains that have been made from residential property will not be eligible for these reduced rates. When it comes to selling their investments, landlords will have to pay the old rates of Capital Gains Tax – something that is being seen as essentially an eight per cent surcharge. Not only that, carried interest will be charged at the old rate as well.
From the government’s point of view, the move was introduced in order to persuade investors to move away from property and to place their money into companies instead, but landlords are understandably dismayed by this decision.
When gains are not what they should be
The new rates will leave anyone selling a residential property with a bitter taste in their mouth as they think of what might have been. For example, at present, if someone who pays the basic rate of tax were to cash in a £10,000 gain on their property (one that is above the tax-free threshold of £11,100) they would be left £8,200 after tax had been deducted. Those on the higher or additional-rate would be left with £7,200.
The new rate, however, would have given landlords who pay the basic rate of tax a return of £9,000, and £8,000 for anyone who falls into the higher or additional-rate. Even the chancellor couldn’t deny that the rate of taxation is one of the ‘highest in the developed world’.
Perceived losses will likely be passed on
It is important to remember, however, that there has essentially been no change to what landlords will have to pay when they decide to sell up. This is not an increase; it is simply a benefit that has not been extended to those who choose to invest in the residential property market.
It is perfectly understandable that landlords will feel victimised by this latest piece of news from Her Majesty’s Treasury, but the fear is that the real losers will be first-time buyers and tenants, as landlords and sellers look to redeem the surcharge levied against them by raising house prices when they come to sell.
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