How to beat pre-Budget tax increases

Buyers of £500,000-plus houses and owners of second homes may be able to avoid potential tax rises in the pre-Budget report (PBR) on December 9 by taking action now, according to accountants.

In spite of the fragile recovery in house prices and calls to extend the stamp duty “holiday” on properties under £175,000, a cash-strapped chancellor may look to squeeze more tax out of wealthier homebuyers and landlords.

The highest rate of stamp duty – 4 per cent – is currently charged on properties bought for £500,000 or more, but accountants said this could be increased to 5 per cent, with a higher rate for properties costing £1m-plus.

“The 4 per cent rate is just waiting to go up,” said Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants.

Buyers purchasing pricier properties should therefore look to exchange contracts before December 9, he suggested.

Similarly, landlords selling buy-to-let properties that are subject to capital gains tax (CGT) at 18 per cent may want to exchange contracts prior to the PBR. With the top rate of income tax rising to 50 per cent next year, experts said a CGT increase to 25 per cent is possible and could be effective immediately.

MP-style “flipping” of homes to avoid CGT may also face a clampdown. Owners of two or more properties who haven’t yet registered for this tax break should do so prior to December 9, accountants advised.

By nominating a second home as your “principal private residence”, the property becomes CGT-free for the three years of ownership before its sale.