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Property sales by buy-to-let investors are expected to swell the Treasury’s coffers this month, with taxpayers expected to hand over billions of pounds in capital gains tax (CGT) in coming weeks.
Receipts, which have already more than doubled since 2012-13, will rise by 5 per cent to £8.8bn in 2017-18 before surging to almost £10bn in 2018-19, according to official predictions.
Many buy-to-let landlords have opted to leave the market after the introduction of harsher tax rules. Soaring asset values and more disposals will more than offset the impact of the CGT rate cut for most assets that came into force in April 2016.
George Bull of RSM, an accountancy firm, said he expected the upward trend in CGT receipts to be much more marked next year. “Far more individuals will have got out of buy-to-let following the tax changes. Other people have sold property to crystallise values before an anticipated decline in property values, particularly in parts of London.”
He said receipts would include gains from bitcoin and other cryptocurrencies. “Apart from bitcoin miners, people with bitcoin gains pay capital gains tax. Many people I know who were bitcoin owners reduced their holdings before the recent crash either as a result of good judgment, stop-loss policies or carefully set trigger points in automatic dealing accounts.”
Sean McCann, chartered financial planner at NFU Mutual, said: “Many thousands of people who have just filled out their tax return will be acutely aware that CGT can take a big bite out of any gains.
“Some of our customers are working in partnership with their spouse to reduce their combined tax bills, taking full advantage of each individual’s CGT allowance of £11,300 by transferring shares and property between them. However, we’ve been warning our customers to watch out for potential tax traps. Transferring property between spouses could trigger a stamp duty charge.”
When George Osborne, the former chancellor, cut the CGT rate for assets excluding residential property in 2016, the Treasury estimated the move would cost £630m in 2017-18. The reforms reduced the basic rate of CGT from 18 per cent to 10 per cent, while the higher rate fell from 28 per cent to 20 per cent. It was a reversal of a move by the same chancellor who increased the rate from 18 per cent to 28 per cent for higher-rate taxpayers back in 2010.
Mr Osborne also extended the reach of entrepreneurs’ relief, which imposes a tax rate of just 10 per cent on £10m of gains for owner-managed businesses. From April 2016 it has been available for long-term investors in unlisted companies, as well as entrepreneurs, helping push up the estimated cost of entrepreneurs’ relief from £2.4bn to £2.7bn this year.
Overall government spending on tax reliefs is expected to increase to a record £155bn in this financial year, according to official estimates published this week. Adam Corlett, senior economic analyst at the Resolution Foundation, a think-tank, said this was now bigger than the combined budgets of the health, transport, justice, Home Office and Foreign Office departments.
He said: “While many tax reliefs exist for good reasons, others are poorly directed and none are scrutinised properly. As a result, their cost is growing without any proper consideration of whether they provide sufficient public benefit.”
The cost of pensions tax relief rose by £950m to nearly £41bn. Andy James, head of retirement planning at financial planner Tilney, said: “This is not actually a huge surprise as tax relief costs are only going one way at the moment — up. Auto-enrolment increases which have been geared in for the next two years will also increase pension contributions and therefore tax relief.”