You’ve probably already heard by now, the Office of Tax Simplification (OTS) has, among other things, called for consideration that Capital Gains Tax rates be increased to match income tax rates.
But what does this mean for Landlords?
First, it’s important to point out that there is a lot of speculation about how the country will pay for the support it has given to the economy during the pandemic. This one could run and run.
As advisers we deal with the current law, not speculation, although we also look to act in line with prevailing government policy which is currently looking to professionalise the landlord sector.
That said, if the changes were to go ahead – and that’s a big IF – then it looks like just one more nail in the coffin for portfolio landlords with property in personal names without a business structure.
Section 24 has already made buying property without a protective business structure an unworkable strategy for professional landlords using leverage (we have free business planning videos for landlords who want to learn more) and these changes would impact those who are unencumbered as well. Especially those with plans to sell property to pay for their retirement.
Today, more than ever, it is so important for landlords to have a business mindset. They’ll be much better placed structuring as a business and taking professional advice if they still wish to be successful in this area.
For example, as well as paying capital gains at corporation tax rates, restructuring as a business can also rebase the value of rental properties for CGT. Significantly reducing CGT liability on any future sales for as long as the business remains a going concern.
Want more detail on the OTS suggested changes? What else have they recommended?
For landlords who have caught the headlines but want the full detail – there is no better place to go than right to the source – you can read the full report by the Office of Tax Simplification on Capital Gains Tax here. It’s a whopping 131 pages long, but there is an executive summary (17 pages) which will get you the core of the detail without that (perhaps unhealthy) dose of media speculation.
You’ll notice that the report includes phrases like:
“This report has been produced in a shorter than usual timeframe; while the OTS has confidence in its overall conclusions it recognises that there are wider policy tradeoffs for government to make and that further, more detailed, work would be involved in taking forward specific recommendations”
There are also some particular comments about some changes impacting on other areas of tax law that need further investigation.
You might argue then that some changes are more practical and easier to implement, and therefore more likely than others.
The main one that the papers have jumped on is the increasing of CGT rates to Income Tax Rates. This is only 1 of 11 recommendations made in the report (you can see them all summarised on pages 18 and 19 of the report).
Note at the time of updating this article on 24th March 2021, no further actions on CGT have been taken to date, with neither the March 2021 budget or Tax Day proposals looking at a consultation to implement any of these suggested changes.
For clients and members of the LT4L Client Community we will obviously review any changes to legislation as they happen and look to provide advice based on any new rulings.
Meanwhile, if you’re not yet a client and are worried about your position and want professional advice based on your circumstances, our Free No Obligation Initial Assessment will let you know if we can help.
You might also find the following articles (looking at actual tax changes) of interest:
Too Late for 2021: How to Make 2022 Your Best Year Yet (an article on landlord tax payments)
What is Section 24? Common questions about Mortgage Interest Tax Relief Restrictions
2021 Budget Summary: Full Details of 2021 Budget, Landlord Commentary & 19 Minute Video Explanation
As a founding member of Less Tax 4 Landlords and member of our Operational Board, Ben helps coordinate a wide range of services and insights for the PRS.
With an entrepreneurial background in business growth, sales and marketing strategy; his main claim to fame around here is having come up with the company name back in 2015.
He also works closely with experts across the wider financial and professional services industries through his capacity as co-owner and Director of one of the three Less Tax 4 Landlords founding companies; The Key 2 Growth Ltd.
