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Boulger says CGT increase won’t hit buy-to-let

John Charcol senior technical manager Ray Boulger says the increase in capital gains tax announced in yesterday’s Budget is unlikely to affect the buy-to-let market.

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In his first Budget yesterday, Chancellor George Osborne announced that from midnight yesterday CGT would increase from18 to 28 per cent for higher-rate taxpayers, while savers paying the basic rate of income tax will continue to pay CGT at 18 per cent. The annual exemption is to remain at £10,100.

However, Boulger says, in his blog, that the impact will be minimal and amateur landlords can mitigate the tax increases.

He says: “I don’t think that increasing the CGT rate for higher rate taxpayers to 28 per cent, as opposed to the 40 per cent widely expected, despite there being no actual taper relief, will have too big an impact on the buy-to-let market.

“The fact that the £10,100 annual exemption has not been reduced, and furthermore that its current indexation will continue, albeit now linked to CPI rather than RPI, means amateur landlords – i.e. those with only one or a small number of properties – will still be able to mitigate their tax liability by selling one property a year, and if they defer a sale until retirement may well still only have to pay tax at 18 per cent on the taxable profit.”

He adds that the measure is unlikely to hit the second home market, saying: “Most people who buy a second home will be relatively well off and will not be buying it for any tax benefits but because they want, and can afford, a second home.”

Boulger has also welcomed the changes to the support for mortgage interest payment scheme.

He says: “The rate of interest used to calculate the amount of this benefit has been left unchanged at just over 6 per cent during the period of steep interest rate falls over the past 2 years. This has been very nice for those receiving this benefit, and their lenders, because as mortgage rates have fallen the amount paid by the government has progressively exceeded the actual interest charged to most borrowers and the surplus has been credited to borrowers’ accounts and used to pay off arrears or repay capital.

“This is not what the scheme was designed to do. It was meant to meet the interest payments for up to two years of those who qualify for this benefit and so a reform is well overdue.”

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  1. Avenue & Co Private Finance 23rd June 2010 at 11:23 am

    Boulger may believe that the new tax bracket wont affect the buy to let market – it certainly will be a deterrent as there is no indexation reliefs.

    In the current climate, the lack of products and tightening criteria for Buy to Let has already has affected the Buy to Let market with activity at a record low across all areas of buy to let.

    With fewer lenders offering Limited company lending, Buy to Let will be the preserve of the wealthy and going forward, as rates rise, the pressures to sell will be exacerbated.

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