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Northampton Landlords and Second Homeowners Will Probably Save Money from the Proposed New Capital Gains Tax changes

If the proposals were adopted in full, some Northampton landlords would pay £10,000 less Capital Gains Tax than they would currently

The government borrowed £394bn this financial year (April ‘20 to April ‘21). This figure does not include the cost of November lockdowns and support measures, which means the final bill will probably be over half a trillion pounds. Ultimately these billions will need to be paid back to cover the cost of Coronavirus.

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Taxation (CGT) rates with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.

This has led to many Northampton buy-to-let landlords contacting me in the last few weeks, wondering if this is the time to exit the Northampton buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.

With tax bills about to go through the roof, is this the time to leave the Northampton buy to let property market?

Yet, like all things, the devil is in the detail as Northampton 2nd homeowners and Northampton landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government. 

Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.

So, what would that actually look like for a Northampton landlord? Let us assume we have a Northampton landlord who bought a Northampton buy to let property in 2000.

Under the current CGT rules 

  • The average value of a Northampton property in 2000 was £92,100
  • Today, that same Northampton property has increased in value to £273,600
  • Meaning a profit of £181,500
  • As our Northampton landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill after the annual allowance would be £47,376

Under the new proposed CGT rules

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same Northampton landlord would only pay £37,807 – a saving of almost £10,000.

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free. 

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen. 

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide their income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa … where else are you going to invest to get the income Northampton property investments provide? 

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your Northampton buy to let investments? Many Northampton landlords do so, whether they use our agency, another Northampton agency or you manage your property yourself. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear - not what you want to hear ... what do you have to lose?

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about the author

This blog follows the property market in Northampton. You’ll find tips, guidance, and analysis that relates specifically to Northampton and you’ll also find properties from all the estate agents in the town on here that may make decent investments. I operate Northwood Estate and Letting Agents at Victoria Promenade and if you’re thinking of selling, buying or letting a property in Northampton I’m happy to offer a second opinion.

"I really enjoy giving advice to landlords on how to get the most from their property investments as well as managing the business." Together with the team I ensure, Northwood offers a first class service to our landlords, tenants, vendors and buyers.

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