Property investors considering disposing of their investment through a gift or transfer to successors or by sale to reduce borrowings in the expectation of increasing interest rates may only have a small window to do so as experts predict capital gains tax will rise soon.
An increase in the current rate of CGT of 18% is considered inevitable. As Government borrowings are expected to top £180 billion for the current financial year an incoming Government, of any colour, is going to have to look at ways of increasing revenue and decreasing expenditure. The latter is limited by political acceptability and so increasing revenue is inevitable, according to Savills.
As transaction volumes and property values are starting to creep up again most investment property sales will be showing capital gains. ‘The current rate of CGT is very low and looks increasingly out of line with a new top marginal rate of income tax of 50%. Such a large discrepancy is unlikely to remain for long,’ said Simon Dixon Smith of Savills, Chelmsford.
‘Now is the time to take stock of what you have and where you want to be. Don’t miss this window of opportunity as net proceeds may fall further after the next Budget,’ he added.
Danny Cox, Head of Advice at Hargreaves Lansdown, also believes that an increase is on the cards. ‘The gap between income tax rates and the capital gains rate is a huge open goal; unfortunately a rise in CGT seems inevitable,’ he commented. Between now and the end of the tax year, there is a short time to take advantage of the rules as they stand, he said.
‘If investors were planning to make large gains at some stage, for example selling buy-to-let property, it is highly unlikely the CGT situation will improve. Creating gains in this tax year and suffering the tax charge at current rates should seriously be considered,’ he said.
The expectation comes as a new survey shows that 90% of people admit they don’t understand what CGT it is or believe it is not relevant. Over 90% are confused, according to the survey from Fidelity International. It warns that investors are losing thousands of pounds.