Chancellor Rachel Reeves has refused to rule out aligning capital gains tax with income tax, which would see more of property owners’ house price gains scooped up by the Treasury. GB News’ property expert Jonathan Rolande provides his analysis on what this means.
A question for you. Is someone earning £100,000 for one year the same as someone earning £100,000 for 10 years?
I ask because reports are circulating that Rachel Reeves plans a tax raid on Britain’s buy-to-let landlords by aligning capital gains tax to income tax.
That would lead to an increase of 67 per cent for owners who bought their investment prior to 2005. The average tax bill would jump from its current £54,000 average to more like £90,000.
Of course the content of Ms Reeves’ Budget is still a closely guarded secret and may even change between now and October 30 – the date most in the property industry are planning to watch through gaps in their fingers.
Buy-to-let landlords could be affected
PAThe fear of such a huge hike has already caused a sell-off of previously rented homes. Many tenants have felt the effect – evicted to boost the sale price. What is good news for buyers is bad for tenants.
Surely it is only fair to align ‘unearned’ income such as the inflation of a property with a worker’s labour. And I suspect few would disagree when it's put like that.
But I go back to my question at the beginning – is earning a substantial amount once, the same as being able to earn it many times?
Answer? It isn’t. Many of the small ‘mom and pop’ landlords who bought a property decades ago for their retirement will be relying on it for the older age.
A brutal tax hike will seriously affect plans they once had. Others will sell before it is implemented, reducing much-needed rental stock.
Today’s 20- or 30-somethings will be deterred from buying – it is almost impossible to make a profit on a buy-to-let already because repairs, renewals, mortgage interest and tax all reduce the yield to much less than money can earn in a bank.
Take away a huge chunk of any price uplift and the reasons for buying evaporate. This will benefit owner occupiers at the expense of their tenant neighbours.
The opportunity to sell a long-term asset happens to most people, perhaps once in their lifetime providing a nest egg just when it is needed.
This is not the same as somebody who has the opportunity to earn a similar amount year in, year out. But taxing unearned income in line with earned income is a compelling argument.
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Jonathan Rolande shared his analysisJONATHAN ROLANDEYou won’t hear many non-investors arguing against it, that’s for sure.
The problem for our new Government is that services are severely depleted and a rising and ageing population expects more assistance than ever before.
The money needs to be raised and landlords look like a prime target to do the paying.
But I have one final question because it's no secret that the last Government hiked up taxes to the highest level since the war. If high taxes got us into this mess, will higher taxes get us out?
Property expert Jonathan Rolande is the founder of House Buy Fast and lead spokesman for the National Association of Property Buyers. For more information visit www.jonathanrolande.co.uk.