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Capital Gains Tax on residential properties

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Alan Boby partner in UK200Group member firm Ellacotts LLP takes a look at the reduction of Capital Gains Tax rates

This year’s Budget saw a fairly unexpected reduction of capital gains tax rates. From 6 April 2016, individuals, trusts and personal representatives who pay capital gains tax will see a reduction in rates for certain assets. The higher rate of capital gains tax (CGT) of 28% has reduced to 20% and the basic rate of 18% has dropped to 10% for chargeable gains.

However, what was even more surprising was the retention of the CGT rates of 28% and 18% for gains accruing on the disposal of residential property (assuming that they do not qualify for private residence relief).

The definition of a residential property interest includes an interest in land that has, at any time in the individual’s ownership,8 included a dwelling and an interest under a contract for an off – plan purchase. Gains arising from mixed use properties are subject to separate rules. There will also be continuing relief for home owners who cannot sell their previous house so long as they sell within 18 months of buying their new home. However, spouses will be continue to be treated as connected and so can only own one CGT-exempt principal private residence between them.

The government say that retaining the 28% and 18% rates for residential property is intended to provide an incentive for individuals to invest in companies rather than in property and to support companies in accessing the capital they require to expand and to create more jobs.

However, the CGT changes also represent a further increase in tax charges affecting buy-to-let owners and other residential landlords. Previously announced tax changes will also reduce the return on such investments for these individuals due to the abolition of the ‘wear and tear’ allowance from April 2016 and the phasing in of reduced mortgage interest relief from April 2017. There is now also the extra SDLT charge (3%) for all purchasers of additional residences (including companies) except for some financial institutions.

As with all such tax situations, advice should also be sought before proceeding. For further details call Alan Boby on 01295 250401 or email aboby@ellacotts.co.uk


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