Homeowners face £8,400 tax burden on capital gains

The Chancellor is considering an increase in the overall rate of capital gains tax (CGT) and an overhaul of allowances in a bid to plug the £50bn hole in UK public finances.

Assuming capital gains tax is aligned with income tax – as the government’s tax adviser had previously recommended – higher-rate property investors would pay 40% on the gains, instead of 28%.

This would mean that a buy-to-let landlord who is a higher rate taxpayer who bought a property for £226,000 in August 2017, the average house price at the time, and sold it for £296,000 £ today would pay an extra £8,400 in tax on a £70,000 gain, according to analysis by tax firm Blick Rothenberg.

Wealthier second home owners who have invested in more expensive property will be hit even harder.

A 45% top rate taxpayer who bought a property for £380,000 and is now selling it for £494,000 – a typical gain in a holiday rental hotspot over the past two years – will have realized a capital gain of £114,000. If their CGT rate rises to 45%, the highest threshold for income tax, they will be £18,700 worse off.

Nimesh Shah, from the accountancy firm, said: “Many individual homeowners are considering their options in the property market, given rising mortgage costs and the cumulative effect of the restriction on debt relief. mortgage interest introduced in 2017.

“With the suggestion that property owners will be hit with significantly higher capital gains tax, investors will need to seriously consider selling their properties before any rate hikes take effect to ‘lock in’ the current highest capital gains tax rate of 28%.

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