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The government's CGT plan explained

The newly-formed coalition government has proposed to hike capital gains tax. Here, Clare Hartnell, global head of property with tax specialist Grant Thornton, explains the implications.


  • What is the proposed capital gains tax change?

The coalition government is expected to set out plans for a rise in CGT on the sale of second homes, buy-to-let properties, shares and other investments. The CGT details will be included in an emergency budget where it is thought CGT will raise from 18% to 40% or even 50% in order to pay for the increase in the income tax threshold to £10,000.


  • Does the proposal simply mean that CGT will be moved in line with the current income tax bands?

That is the suggestion, but it has not been confirmed and it is possible that it will not be quite as high as 40%. We will find out the exact level during the Emergency Budget which will be called within 50 days of the agreement which works out as the end of June.


  • Is the CGT change definite?

The coalition government has confirmed a change to CGT will take place, but details as to how they will change it and the exact level has yet to be announced.


  • When is the change likely to take effect?

The new Chancellor is expected to set out plans for a rise in CGT at the start of the new tax year in April next year.


  • I'm a lettings agent. How will it impact me?

The change is expected to hit buy-to-let hard. It will cause pain to the housing market at exactly the time when more investors are badly needed to fill the demand for rental accommodation. The rise may also create a rush of property sales before it comes into play.


  • What about my BTL clients? What advice should I give them?

    If looking at buying, a BTL client will need to factor in additional tax when considering the merits of making an investment. For those considering selling properties, it may be worth trying to do this before any new increases come in. That said, we need to see the detail of the proposals. At this stage, there is a degree of speculation as to what the exact changes will be.


  • Should professional landlords consider restructuring and/or reducing the size of their portfolios? Or should they wait for further detail from the government?

It is thought that any changes would take effect from April 2011. If that's the case, it is worth waiting to see the further detail. If it were to change on the date of the Emergency Budget though, action should be taken today. The key issue is when any changes will take effect, and that is down to speculation.


  • Is it really worth a landlord with one or just a few properties continuing to be a player in the private rented sector?

Yes, it is. However landlords need to consider the impact on post tax returns and evaluate these in accordance with other alternative investments. The proposed changes are likely to have the same impact on other proposed investments. This is unless they can fall to be treated as business assets although we have yet to see the definition of this.


  • Is there any chance there could be an alternative structure introduced, such as one based on taper relief as we have had before?

Anything is possible, and it is hoped that the government will bring in a form of taper relief or something similar.


  • How would that work in today's housing market, and specifically the BTL market?

If it was brought in, it is likely that the relief would increase the longer the property was held for. We have had tapering provisions in the past that encouraged longer term ownership, and so it is not inconceivable that they will introduce something along these lines.

Clare Hartnell is global head of property at Grant Thornton



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