Research - The impact of Capital Gains Tax

Landlords have taken a battering from the taxman in recent years – with major changes to mortgage interest relief, stamp duty and wear and tear allowances to name just a few. 

More change could now be on the way with the Government announcing a new review into the way Capital Gains Tax is levied, with a recommendation from the Office for Tax Simplification (OTS) that it should be brought in line with income tax levels. 

In all 2,135 landlords responded to our Quarter 3 landlord survey on finance and tax, which included questions on the impact of changes and what future adjustments could mean. 

This year has already seen some changes to the way Capital Gains Tax operates. 

Landlords this tax year must, for the first time, declare and pay any CGT liabilities from the sale of investment property within 30 days of selling the property.   

In the past they have been able to wait and pay the bill as part of their tax return.   

There have also been changes to private residence relief and letting relief which will further increase CGT liabilities.  

However, the OTS proposals, if taken up by the Chancellor, are far more than technical changes.   

According to the survey a total of 44% believe the tax already has a negative impact on their business. 

In all 59% said they were holding onto property longer than they had planned when they started out in the business.  

And  66% were against the idea of aligning CGT with income tax, with just 5% in favour and 9% saying they would support the idea on a temporary basis. 

For Government,  the benefit of increasing CGT is that it would raise revenue, however with 34% saying a rise would encourage them to keep hold of property for longer this may not be the case. 

It is clear landlords have grave concerns about the impact of CGT on the private rented sector, with the tax also having a big influence on long term decisions landlords take regarding their portfolios. 

According to the research, increases could see rents rise as landlords attempt to protect their income and investment stifled as the market dries up. 

At a time when more, not fewer, homes in the PRS are needed the Chancellor needs to look elsewhere to raise revenue.