LANDLORDS FACE £90,000 CAPITAL GAINS TAX BILLS UNDER LABOUR SHAKE-UP

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Landlords face £90,000 capital gains tax bills under a Labour shake-up of the country’s tax system, new analysis shows.

Chancellor Rachel Reeves has refused to rule out aligning capital gains tax with income tax, which would see more of property owners’ house price gains hoovered up by the Treasury.

If the taxes were aligned, landlords looking to sell properties they bought before 2005 would have to fork out between £87,000 and £90,000.

This is a 67pc increase on the current £54,000 average that those selling their property after 20 years of ownership have to pay to cover the levy, according to estate agent Hamptons.

A Treasury spokesman said Ms Reeves “has been clear that difficult decisions lie ahead on spending, welfare and tax” to address the “£22bn black hole” in public finances.

The Chancellor has already scrapped winter fuel payments for 10 million pensioners and ditched the Conservative’s social care reforms in an effort to generate £5.5bn in savings.

Ms Reeves is expected to make further cuts in her first Budget, which is set to be announced on October 30.

For many landlords, inflation has already severely eaten into house price gains. David Fell, lead analyst at Hamptons, said given inflation has risen by 80pc over the past 20 years, some property sellers will end up being taxed on a real terms loss.

Landlords who bought around 2007, at the top of the market, have seen an average uplift in value of £109,307 over their period of ownership.

This is an increase of 57pc, but the Consumer Prices Index has risen faster, at a rate of 67pc over the same period.

Mr Fell said: “While on the face of it aligning capital gains tax rates with income tax rates sounds fair, the biggest issue is probably inflation – given that gains from 10 to 20 years ago are being taxed at a single point in cash terms.”

Most landlords are also PAYE taxpayers, so they pay capital gains tax bills on top of the taxes taken out of a monthly salary.

In the year a landlord sells, they may realise a profit in a single tax year equal to two to three times an annual salary.

For example, landlords would face a capital gains tax bill of £23,280 on a £100,000 gross gain on the sale of a property. But if this uplift was earned as a salary over two years, equating to £50,000 per annum, the total tax bill comes to a lesser £20,957.

Because capital gains income tends to be drawn in lump sums, it means in practice the tax bill already tends to be higher than the income tax and National Insurance bills most workers pay.

Mr Fell said any hikes to capital gains tax will prove to be a disincentive for many landlords to sell.

He added: “On the flip side, it will probably prove to be a disincentive for new landlords weighing up the price of investing compared to other options. This will squeeze supply even further and widen the gap between personal and corporate tax rates.”

In the lead up to the Budget, members of the Royal Institution of Chartered Surveyors have reported an uptick in landlords selling up because of the anticipated tax changes.

The number of new rental homes coming onto the market has also fallen drastically in some areas. In East Anglia, the number of landlords instructing estate agents on new homes was down 59pc in the three months to July.

In the East Midlands, it was down 37pc – more than double the fall recorded for this area of England a year ago.

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2024-09-17T05:03:58Z dg43tfdfdgfd