Reduction in Capital Gains Tax on Buy-to-Let

Issued: 10th October 2007
Pre-Budget: Cheer for second homeowners

The nation's army of buy-to-letters will be cheered by the announcement in today's Pre-Budget report that capital gains tax is to be cut from 40 per cent to 18 per cent.

Although no capital gains tax is due on your main residence, this tax is payable on all second properties, whether they are holiday homes or an investment.

CGT is due when the property is sold, provided the gains made exceed £9,200, not a high hurdle given the buoyant property market over the past few years.

However taper relief can be applied, and the exact rate of CGT payable currently depends on the length of time the asset has been held.

But even if the maximum taper relief is applied, property owners will still pay a minimum of 24 per cent tax on gains.

So Alistair Darling's announcement that taper relief will be abolished and a flat rate of 18 per cent will be applied instead looks set to benefit all second home owners.

Private shareowners will also benefit from the reduced CGT rates, as gains in excess of £9,200 are also currently subject to 40 per cent CGT.

Andrew Jupp, the national head of tax at Tenon, the accountancy firm said: "It was widely expected that there would be some changes to capital gains tax. But Darling's solution has taken us all by surprise. We now have a single flat rate of 18 per cent for all capital gains made by individuals, trusts and partnerships. In effect Darling has dismantled the whole of Gordon Brown's CGT reforms."

He adds that there will be winners and losers from the new reforms, with those who have spent years building up family businesses set to lose out, as currently they can potentially pay just 10 per cent, under business asset taper relief

The new rules apply for disposals on or after 6 April next year (2008), so those contemplating selling a second home or crystalising gains above the CGT limit may want to delay this action. Those seeking to dispose of business assets should seek further specialist advice.

Source: Daily Telegraph Online