In this week’s emergency Budget, George Osborne, chancellor, announced that the new higher tax rate on gains would apply from Wednesday June 23. Ahead of the Budget, some property investors had feared that a 40 per cent rate would be introduced from next April – after the coalition government said it would tax non-business assets at rates “similar” to income tax – thereby triggering a sell-off of second homes and buy-to-let properties, and big price falls.
“The increase in CGT to 28 per cent is actually a relief,” said David Adams of Chesterton Humberts, the estate agents. “At this level, it doesn’t really affect decisions on whether to buy, sell or hold, although re-introducing taper relief would have benefited the buy-to-let sector.”
Analysts said that with higher-rate CGT at 28 per cent, the argument for property investment still looked strong. Capital gains still compare “very favourably” with income tax at 40 or 50 per cent, said Liam Bailey of Knight Frank.
The new rate returns CGT to a similar level to pre-2008, when taper relief was able to reduce the effective rate to 24 per cent on assets held for 10 years.
A number of estate agents had reported a sales rush to avoid the potential larger increase in tax ahead of the emergency Budget. Instructions taken on by Chesterton Humberts last month were more than 150 per cent above the levels seen last May – although the abolition of Home Information Packs helped to increase property supply.
Other estate agents reported an increase in the number of second homeowners transferring property to corporate entities with lower capital gains tax liabilities.
Geoff Everett, tax director at Smith & Williamson, the accountancy firm, said the reduced rates of corporation tax – announced in the emergency Budget this week – could make the use of companies more prevalent in tax planning for high earners.