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Capital Gains Tax – how could the new changes affect you?

The Chancellor’s Autumn budget contained some interesting information particularly related to Capital Gains Tax (CGT) and while much has been publicised about the fact that international purchasers buying property in London will now be forced to pay CGT in line with local residents, less has been said about new changes coming into effect in April affecting second home owners.

The period of exemption from paying CGT on a second home is set to be halved from 36 months to 18, starting from the 1st of April 2014, with the biggest effect likely to be felt among accidental landlords and let to buy investors who may not even be aware of the new changes. Rebecca May, Sales Manager at our Earlsfield branch, comments: “While this could well be alarming to many investors and landlords of profession, the worst affected will be normal homeowners who perhaps kept their first property to rent out when they upsized to accommodate a growing family, divorcees and even parents who have purchased a home for children. Taking into account the buoyant sales market currently and the large increases which many homes across London have seen, these owners will find that they could now be subject to paying some rather large tax bills when they sell, which up to now, they weren’t aware of.”

CGT is currently calculated at a rate which is based on your personal rate of income tax, with the majority of owners paying CGT at a rate of 28% on any profit made on a property. Crucially however, there is annual exempt amount which is tax free of £10,900 for the tax year 2013/14 which will rise to £11,000 for 2014/15.
The key facts about CGT:

  • CGT on property only applies when you own more than one home, so you won’t pay it on any property that you live in – only those which you either rent out or use as a secondary location.
  • CGT is only payable when you sell the property – not while you still own it.
  • CGT will only be calculated on the profit the property makes after the 18 month exemption. So if you have owned your property for five years and lived in it for 2 of those, you will only be liable to pay CGT on the remaining 1.5years.
  • With only 2 months remaining until the new period of exemption comes into effect, it is advisable for any homeowner with more than one property to speak to a tax advisor. Should you wish to arrange a valuation for your property to determine the profit accumulated or if you would like to discuss the option of selling your home before April, our branches are happy to assist.

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In house team London Property Market

As the marketing and communications team at Kinleigh Folkard & Hayward's head office, our aim is to keep you updated and informed where the London property market is concerned. In addition, we'll bring you tips on navigating current issues and trends in the market when buying, selling, letting and renting to ensure that whatever field you're interested in, you'll be completely informed.

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