BUDGET 2016: A reduction on capital gains tax rates has left second home owners caught in a tax trap, according to experts.
Capital gains tax rates are to be dropped by 8% from 6 April for both higher and basic rate taxpayers.
In addition a 3% rise in stamp duty for all second home purchases was confirmed.
It had been expected that the reforms would further encourage asset disposals among second home owners by reducing penalties on disposing of second homes by more than the increase in stamp duty.
However, the chancellor kept an 8% surcharge on disposals of residential assets and carried interest, effectively leaving the capital gains tax rate unchanged for private and institutional landlords alike.
Phil Nicklin, a tax partner at Deloitte, said: “While general capital gains tax rates are being reduced down to 10% and 20% for basic-rate and higher-rate taxpayers, there is an 8% surcharge on top of these rates for gains on residential property.
“This additional 8% surcharge lumps buy-to-let investors into the same category as private equity managers, who are subject to the 8% surcharge on their carried interest.”
The British Property foundation said the move now left investors in position few had expected.
Melanie Leech, BPF chief executive, said: “The government clearly has an agenda vis-a-vis the smaller residential landlord, and many will be disappointed that having sought to encourage smaller landlords to sell up, the government is now also depriving them of lower rates of CGT available on all other assets.
“The only justification could be housing market instability, which the Bank of England has warned about, if too many landlords exited the market at once. But the government could have phased relief and tried harder if the will had been there.”
The reduction in CGT is expected to reduce government tax revenue by as much as £630m in the 2017-18 financial year.
To send feedback, e-mail mike.cobb@estatesgazette.com or tweet @MikeCobbEG or @estatesgazette
