Long-Term Penalties – The CGT Rise
With less houses available and less public money to build new social housing, the private rented sector provides much needed housing for those who are unable to buy.
Although the sector was first initially warned of a capital gains tax that was likely to be in a 40%-50% bracket to bring it in line with income tax, the Chancellor’s announcement in last weeks emergency budget of a CGT increase came with some relief, but there are still concerns regarding long-term investment.
While basic-rate taxpayers will continue to pay the same 18% tax, the higher-rate taxpayers will now pay a 28% tax on profits when they sell any house that is not their main residence. With a policy change of this sort, and without indexation, (taxing profit above inflation), where is the incentive to keep hold of long-term investments such as the buy-to-let sector? Under indexation the longer the buy-to-let property is held, the more reduction in taxes an investor will receive.
This is a real concern for landlords looking to expand their portfolios, in order to supply the demand that is currently sweeping the PRS. If property prices fail to rise above the rate of inflation, the tax levied on the higher-rate taxpayer will be of a larger sum, making a long-term investment in the buy-to-let sector, less appealing, while also causing lack of faith in the market that is bound to discourage long-term investments.
As a ramification of economic recession and the tightened lending policies applied by banks on consumer mortgages, the PRS has grown steadily. Instead of penalising investors in this sector, support and encouragement is needed.
By
Madalena Penny