Landlords of UK buy-to-let property have responded to the government squeezing their returns by selling assets, triggering a bumper 18.6 per cent rise in capital gains tax payments.
Data released by HM Revenue & Customs, the tax authority, on Wednesday revealed the CGT tax take hit a record £9.2bn in the 2018-19 financial year, up from £7.8bn in the previous 12 months.
CGT applies to gains made from the sale of assets such as second properties and stocks and shares.
All taxpayers have an annual CGT exemption of £12,000. Above this amount, lower-rate taxpayers pay 10 per cent on capital gains and higher and additional rate taxpayers pay 20 per cent. However, people selling second properties pay CGT at 18 per cent if they are a basic rate taxpayer or 28 per cent if a higher or additional rate taxpayer.
Analysts attributed the hefty rise in CGT receipts to property taxes changes in the past two years that have led buy-to-let landlords to sell assets.
“Landlords are being caught in a very effective pincer movement from the taxman,” said Sean McCann, chartered financial planner at NFU Mutual, a financial services company. “From one side the higher rate tax relief on mortgage interest is gradually being phased out and making letting out properties less profitable. From the other side, landlords looking to sell buy-to-let properties are being squeezed with an extra 8 per cent capital gains tax.”
The CGT tax take is likely to be bolstered by buy-to-let property sales for the next few years, he added.
Tim Stovold, head of tax at accountancy firm Kingston Smith, said another factor was more foreign buyers snapping up owner-managed UK businesses that were cheaper to buy as a result of sterling’s weakness since the 2016 EU referendum. Business owners typically trigger a personal CGT bill on the sale of their company.
The buoyant stock market also contributed to bumper CGT figures according to Sarah Coles, personal finance analyst at Hargreaves Lansdown, an investment services company, as investors’ strong gains resulted in higher taxes.
Meanwhile, the amount HMRC received from penalties given to taxpayers also shot up by 15 per cent- rising to to £816m in 2018-19, from £708m in 2017-18, and increasingly steadily since 2009-10.
“While [the amount] is not a big number, it shows the Revenue have become more aggressive on charging penalties,” Mr Stovold said.
Overall, HMRC collected £622.8bn in tax in 2018-19, a rise of 5 cent on the previous year. The rise was driven by strong income tax and national insurance receipts which in turn were connected to record employment numbers.
“In many cases the taxman hasn’t had to increase taxes in order to take more of our money,” said Mrs Coles. “He just waits for our incomes to rise and asset values to increase.”
Individuals should take advantage of tax-free allowances and wrappers, such as pensions and individual savings accounts, “to enjoy the fruits of your labours, without the taxman taking a bite,” she added.
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