CGT Reforms Shelved but Cladding Tax for Developers Tabled
Plans to reform capital gains tax have been shelved, but experts say they could be revisited in the autumn. Meanwhile, a tax on residential developers has been proposed to help pay for cladding repairs
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Plans to reform capital gains tax (CGT) appear to have been shelved by the government, documents published on Tuesday showed.
The Treasury had been widely expected to start a consultation exercise to align capital gains and income tax rates as part of its “tax day” announcements. It followed a recommendation by the Office for Tax Simplification at the end of last year and would have meant a larger bill for higher-rate tax payers.
Instead, the main news for the property industry was a plan for a residential developer tax to help pay for cladding repairs. The overall aim of the consultation process is to target tax avoidance and for the government to use its digital agenda to modernise the tax system.
“The much-promised change to capital gains tax seems not to have materialised,” said Matthew Braithwaite a partner at law firm Wedlake Bell. “It may be the government has bigger fish to fry at the moment. The revenue raised from CGT and inheritance tax was perhaps not deemed significant enough to be worth the cost and time of the exercise.”
The tax take from CGT would double from £20 billion from £10 billion under the plans, according to an estimate from Nimesh Shah, the CEO of tax advisory specialist Blick Rothenberg. This figure compares to the overall annual tax take of £635 billion.
Shah believes an announcement could still follow as a useful way of bringing in extra revenue ahead of the next planned general election in 2024.
“I am still convinced there will be an announcement on CGT at the Autumn Budget with an increase to take effect from 6 April 2022. I don’t think it will be as dramatic as an alignment to income tax but I expect it will increase from the current rates of 20% and 28%.”
Any further changes later this year would not be welcomed by the property industry, said Braithwaite. “Nobody likes uncertainty and you would hope that this is now the government’s roadmap and the goalposts won’t be moved again.”
The residential property developer tax, which the government proposes to introduce in 2022, is designed to pay for cladding remediation work in the wake of the Grenfell Tower fire in 2017 and is intended to raise £2 billion over ten years.
“The government and property industry are working together to tackle the problem,” said Justin Gaze, joint head of residential development land at Knight Frank. “It is a major issue for the residential development sector and whilst nobody willingly wants to pay additional taxes it is accepted that this is part of the solution to the cladding crisis.”
In other proposals:
The government is tightening rules on holiday lets, meaning owners will only be able to register for business rates to reduce their tax liability if their properties are genuine holiday lets.
It also plans to streamline the inheritance tax process, examine the current business rates system and simplify land and property VAT exemption rules.
Photo by Viktor Forgacs on Unsplash