David Boyd, Managing Director, PAD4U Letting Agents Manchester writes:
In my post before the budget I urged landlords not to panic at the talk of 40% Capital Gains Tax (CGT) and a reduction in the tax free buffer from £10,000 to £2,000. I expected that the propaganda before the budget would try to paint the worst case scenario for CGT, so that come the day all of us would breath a sigh of relief when the news wasn’t so bad. Which is pretty much what happened.
CGT was raised for higher rate tax payers from 18% to 28%, (remember even if you are a lower rate tax payer, the capital gain will be added to your income to determine whether you will pay the higher rate CGT). This is not a small rise and as I pointed out in my previous post it is in practice a retrospective tax as any gains you have already made will be taxed at the new rate should you dispose of an asset. The £10,000 free tax band has remained thankfully, taking the some of the pain away from the 10% increase.
I fundamentally disagree with any increase in capital gains tax, because I believe that all Governments have let us down with protecting our pensions forcing each individual to look after their own pension provision and many have rightly chosen to do that through property, as it is an asset class they understand rather than derivatives or bonds or the like.
The Liberals argue that income tax and CGT have become disconnected allowing rich individuals to pay less tax than those on the lower income tax band. However, what hasn’t been discussed is the discrepancy in tax between the various type of pensionable asset classes. There are many tax efficient vehicles for people to invest for their pensions such as ISA or SIPPs. These vehicles allow investors to avoid any CGT on whatever assets they hold within those vehicles. However, whilst you may hold all sorts of assets from shares, bonds, fine wine, fine art, stamps, commercial property, etc., it is not possible to hold residential property in either an ISA or a SIPP.
If it is the Governments policy to create parity in the tax of income and capital gains tax then they must allow residential property to be place into SIPPs, so that Buy-to-Let investors are not singled out as the only group of investors who for the provision of their pension arrangements will be paying full CGT, whilst all other investors will not pay any CGT whatsoever.
The rest of the Budget was pretty much inconsequential for Buy-to-Let investors. The removal of HIPs was good for the industry, but little else has changed. Housing benefit restrictions are not likely to affect local Landlords and as PAD4U landlords we wait until Housing Benefit rents are paid directly to the landlord before recommending more readily.