The Chancellor announced a cut to capital gains tax in the 2016 Budget, but landlords who sell their property will not benefit.
This has prompted the Association of Residential Letting Agents to accuse the government of an “outright assault” on the buy-to-let sector.
The basic rate of capital gains tax (CGT) has fallen from 18% to 10%. The higher rate has fallen from 28% to 20%.
The lower rates are a boost to many investors who will in future pay less tax on any profits from the sale of assets such as stocks and shares.
Tax in action
For example, a basic-rate taxpayer who made a £10,000 gain (above the tax-free allowance of £11,100, which every adult is entitled to), would pay tax of £1,800 under the previous regime.
Now, the same taxpayer would expect a CGT bill of just £1,000.
However, the cuts do not apply to any gains made on the sale of residential properties.
In other words, landlords will effectively face a capital gains tax surcharge when they sell up.
“Incentive to invest”
In the Budget speech, the chancellor explained that the decision was intended to “ensure that CGT provides an incentive to invest in companies over property”.
But landlords could be forgiven for feeling under a sustained tax attack from the chancellor.
George Osborne only recently announced that landlords will now also pay a stamp duty surcharge on buy-to-let homes of three percentage points above the current rates.
For example, a property bought before 1 April 2016 for £500,000 attracted stamp duty of 0% on the first £125,000, 2% on the next £125,000 and 5% on the remaining £250,000, or £15,000 in total.
Now, the rates are 3%, 5% and 8% respectively, adding up to a bill of £30,000 for buyers who already own one or more residential properties.
Landlords with more than 15 properties had been hoping to escape the extra cost, but Osborne declared in the March 2016 budget that all buyers of second homes would be subject to the levy.
The surcharge also applies if you are buying a new main residence, but your previous home has not been sold.
However, you will now have 36 months, instead of the threatened 18 months, to apply for a refund if you subsequently sell your old main residence.
The higher rates of stamp duty could affect more than just landlords.
You could, for example, be caught out if you are buying a home with another person who already owns an additional property.
Parents could also end up paying the surcharge if they help their children to buy a home and are named on the deeds.
Wear and tear
That’s not all. In another change to the tax regime implemented in April 2016, landlords can only claim for wear and tear costs they incur – and they must provide itemised receipts.
The previous regime allowed landlords to deduct an annual allowance from their taxable profits for notional wear and tear, irrespective of their actual expenditure.