Rachel Reeves to Leave Capital Gains Tax on Property Unchanged: What It Means for Landlords and Investors

Rachel Reeves, the UK Shadow Chancellor, has decided not to raise the Capital Gains Tax (CGT) on second homes and buy-to-let properties, alleviating concerns among landlords and investors. According to reports, fears of an increase in the upcoming budget were unfounded, as ministers are wary of potential adverse effects on the property market.

Current Capital Gains Tax Rates on Property

CGT is levied when individuals sell assets that have increased in value, such as second homes or investment properties. The rate for property sales is currently set at 18% for basic-rate taxpayers and up to 28% for higher-rate taxpayers. In the last budget, the Conservative government reduced the top rate of CGT on property from 28% to 24%, a move that was intended to stimulate more property sales and boost revenues through stamp duty.

Why No Increase?

The decision to leave CGT on property unchanged stems from concerns that raising it could slow property transactions and ultimately reduce tax revenues. With the government eager to avoid further economic strain, it appears the priority is to maintain stability in the property market. The Office for Budget Responsibility had previously predicted that the 2023 CGT cut would generate £700 million by encouraging more sales. The fear is that reversing this move would stifle activity in an already fragile housing market.

Broader Tax Reforms on the Horizon

While property investors may breathe a sigh of relief, the Chancellor's focus may shift to other areas of taxation. Reports suggest that Reeves is preparing significant reforms, particularly to CGT on assets such as shares, with an expected rise in the tax rate. Currently, the CGT rate for these assets is up to 20%, and an increase of several percentage points is anticipated. Though CGT only affects around 350,000 individuals annually, it contributes roughly £15 billion to the UK’s tax receipts, according to data from the Institute for Fiscal Studies (IFS).

Interviews conducted by the Institute for Public Policy Research (IPPR) suggest that even a higher CGT rate on shares may not discourage investment. Business leaders like Julia Davies and Graham Hobson have indicated that tax rates have never been a barrier to their entrepreneurial activities. Hobson, the co-founder of Photobox, said that the idea that higher CGT stifles investment is a “myth,” recalling how the tax was equal to income tax when he started his company, and it did not deter his business ventures.

Other Potential Changes: Inheritance Tax and National Insurance

The Treasury is reportedly considering reforms to inheritance tax and pension tax relief, as part of a broader strategy to raise £40 billion through a combination of tax hikes and spending cuts. Increasing National Insurance (NI) contributions for businesses has also been discussed. The idea of levying NI on employers’ pension contributions, which could generate between £12-£17 billion, is currently under consideration.

While Labour has pledged not to increase taxes on working people, National Insurance for employers remains a potential target. However, industry groups have criticized this as a "tax on jobs," raising concerns that it could negatively impact employment and economic growth.

Fuel Duty Increase Likely

Another anticipated move is the first increase in fuel duty since 2011, a measure that has been frozen for over a decade. Although this change would be controversial, it appears to be a strong possibility as the government seeks additional sources of revenue.

Conclusion

Rachel Reeves' decision not to raise CGT on property represents a pragmatic approach, aimed at maintaining momentum in the housing market and avoiding economic disruption. However, as the government faces tough choices in the months ahead, other areas of taxation, such as CGT on shares, inheritance tax, and National Insurance contributions for businesses, are likely to face reforms.

With the budget expected at the end of October, investors, landlords, and the broader public will be watching closely to see how these changes unfold and what impact they may have on the economy and property market.

This decision underscores the balancing act the government faces between generating revenue and ensuring that critical sectors of the economy are not destabilized by tax changes.

Written By.

Harsh Mayavanshi
Business Development
Email: harsh@peaksons.co.uk
Peaksons Properties Limited
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