A £14 billion tax hike by the Chancellor could be used to recoup much of the spending underpinning the UK’s post-pandemic economic recovery, according to experts.
This means that landlords and those with a holiday home could be penalised if, as expected, a capital gains tax rise is the solution – as second properties, such as holiday homes or rental properties, are subject to capital gains tax when they are sold.
The Chancellor, Rishi Sunak, has commissioned a report looking into economic solutions for the COVID-19 pandemic.
Salman Haqqi, personal finance expert at money.co.uk, said: “As it stands, if you sell a property in Britain, you will almost certainly need to pay capital gains tax (CGT) on the profits you make. In most cases you won’t need to pay that tax when selling your main home.
“However, you will likely face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is partly used as a business premises, or you lease out part of your property.
“Basic-rate taxpayers usually pay CGT of 18% on gains they make when selling property, with higher and additional-rate taxpayers paying 28%.
“It is worth remembering that capital gains will be included when your tax status for the year is calculated, and could well push you into a higher tax bracket.
“All taxpayers have a yearly allowance for CGT, so you can earn a certain amount tax-free. This year, people can make tax-free capital gains of up to £12,300 without attracting CGT. Couples who jointly own assets can combine this allowance up to an allowance of £24,600.”
What happens if Rishi Sunak makes good on the predicted tax-increase to help get the UK onto a healthier economic footing post-pandemic?
Salman Haqqi added: “Experts are saying this could happen as part of the Budget. So, it is definitely worth landlords and people with holiday homes keeping an eye on developments if they are considering selling a second property.
“The issue is that second homes can’t be held in a pension or an ISA so they are difficult to sell in small chunks, which would enable vendors to take advantage of the annual exemption. Selling the property, therefore, is likely to generate a significant capital gains tax bill.”
Money.co.uk has produced a guide to the taxation of investments to help property owners navigate the rules: https://www.money.co.uk/guides/how-are-investments-taxed.htm.