Increase In Capital Gains Tax Not As Serious As We Thought?

The announcement of new coalition government’s plans to increase CGT to 40% from 18% came as a shock to the property industry.

However, Chris Cobbold, head of the housing practice at DTZ, said that companies will be able to tackle the impact of the government’s plan to double capital gains tax so the effect will “not be as great as first imagined” . Moreover there will be ways for both larger and smaller landlords to avoid the tax rise.

He said: “While the majority of buy-to-let investors own only one or two properties, the majority of private rented sector (PRS) stock is owned by people who are running a larger portfolio – say over 25 properties – which means they are running a small business on a part or full-time basis.

“One would expect those landlords to be able to claim that their properties are a business asset.

“These landlords might have to change their mode of operating – putting assets into a company structure with all that entails, but I expect they would not end up paying 40% CGT on disposals.”

However, Cobbold said that the CGT rise may reduce the incentive to invest in the sector, and the impact of corporation tax changes may also impact on landlords.

“Amongst the smallest landlords one might well find significant levels of avoidance,” he said.

“For example, landlords who wish to sell a property may decide that they will make the property their principal residence for a period of time, so they can sell without incurring CGT.