Bringing Capital Gain Tax (CGT) rates in line with those for Income Tax could hit buy-to-let landlords, portfolios, second homeowners and people with inheritances, according to an expert at Bath-headquartered law firm Royds Withy King.
Earlier this week Chancellor Rishi Sunak announced a review of CGT, with many commentators claiming it could result in CGT rates becoming aligned to Income Tax rates.
The review is to be conducted by the Office for Tax Simplification with more detail expected in the Autumn Budget.
Royds Withy King partner Rod Smith, pictured, who heads the firm’s private client team, believes aligning capital gains tax rates with those for income tax – along with a review of the current reliefs, allowances and exemptions – could have a major impact on buy-to-let portfolios, second homes and, potentially, individuals receiving an inheritance.
He said: “It is easy to understand why the government is looking to reform Capital Gains Tax. Changes may be straightforward to implement, will affect those in line to receive a significant cash gain from a sale, and future revenues can easily be forecast, but it will be a bitter pill to swallow for those affected by any changes.
“Buy-to-let investors have seen tax advantages which they previously enjoyed, and which were made available to encourage capital investment, slowly eroded and further changes to Capital Gains Tax will hit them hard if property portfolios are held personally.
“It should also be remembered that landlords are already facing Covid-related requests for rent reductions or holidays.”
Second home and holiday homeowners wishing to sell also potentially face a CGT rate of 45% on any gain if they are an additional rate taxpayer, and their effective marginal rate can be even higher, he said.
“This may leave holiday homeowners choosing to delay a sale and hold on to their asset particularly if it is generating a rental income.
“And whilst not explicitly mentioned, there is a chance the government will choose to remove the CGT uplift currently applying on death where beneficiaries inherit assets with an uplifted date of death base cost for any subsequent gift or sale of the asset.
“It is a valuable relief for beneficiaries, but we would not be surprised if that is scrutinised by the Chancellor following this review.”
Royds Withy King also has offices in Swindon, Oxford, Bristol and London.
