Chancellor rules out CGT rise in Budget – Mortgage Strategy

The chancellor has reportedly ruled out increasing capital gains tax in this month’s Budget.

According to Treasury sources cited in The Times, John Healey is not planning to raise the tax as he fears that doing so could harm economic growth.

The decision could spare some landlords more than £15,600 in additional tax when selling an investment property, according to analysis from The Letting Partnership.

The firm calculated that the average UK property increased in value by £74,442 over the past decade, from £198,169 in July 2016 to £272,611 in July this year.

Under current rules, a higher or additional-rate taxpayer selling a property with that gain could face a CGT bill of £17,866 at the current 24% rate, excluding allowances.

If CGT had instead been aligned with income tax rates, the bill for a higher-rate taxpayer could have risen to £29,777 at 40%, an increase of £11,911.

For an additional-rate taxpayer, a 45% rate could have increased the bill to £33,499, adding £15,633.

A basic-rate taxpayer could have seen the liability rise from £13,400 at the current 18% rate to £14,888 at 20%, an increase of £1,488.

The Letting Partnership chief operating officer Chris Mason says: “The chancellor’s decision not to pursue an increase in CGT will come as a welcome relief to landlords, particularly those who have seen the value of their investment properties increase substantially over the last decade.

“However, while this particular threat appears to have been taken off the table, the wider challenges facing the private rented sector remain.

“The government must recognise that it is the cumulative impact of these changes that risks undermining landlord confidence.”

AJ Bell head of personal finance Sarah Coles says that keeping the CGT rate unchanged is probably a sensible move from a tax revenue perspective. 

She says: “The August tax receipt figures were a useful reminder that for this particular tax, tightening the screw doesn’t always raise more money for the public finances.

“In the months since the start of the new tax year, the Treasury has taken less in CGT than a year earlier. 

“That suggests the dramatic cuts in the annual exempt amount and the hikes in the rate for stocks and shares haven’t boosted the tax take as the Treasury might have hoped. 

“People simply changed their behaviour to get around it – realising gains before a change and then hoarding assets for as long as possible afterwards, or simply deferring gains in the hope of waiting out higher taxes.”