Property tax predictions for 2021
Covid-19 has put a huge strain on public finances, likely with more to come, and Government borrowing is already at a peacetime high with spending cuts, and tax rises, all but certain.
The tax-world appears to be anticipating a range of changes in the Budget on March 3rd and none of them for the better, at least not from the perspective of property owners.
So let’s run through what we know, and what we think we know, and maybe speculate a little as I offer what the Chancellor likely has in store for buy-to-let landlords and property investors in 2021, and how you can still prepare.
Capital Gains Tax
In July of 2020 the Chancellor told the Office of Tax Simplification to opine on whether CGT is fit for purpose and whether it could be, well, simplified.
Their suggested ‘simplification’? Increase CGT, in line with Income Tax, and reduce the Annual Allowance.
More specifically, the OTS recommends that Capital Gains Tax on buy-to-let properties should rise to 20% for basic rate tax-payers and to 40% for higher rate and that the CGT Annual Allowance is lowered from £12,300 to just £2,000.
Prediction: When that happens it will impact BTL landlords, and second home owners, and likely there will be a mini-boom in property sales, before legislation comes into effect
Wealth Tax
The proposal from the Wealth Tax Commission is for a one-off tax on individuals with assets worth over £500,000, or £1m for married couples, instead of raising Income Tax or VAT
The Wealth Tax Commission wants this to include main residence (i.e your home) AND your pension pot, and says that a 1% tax on assets should raise the required £260bn over 5 years
Prediction: Keep an eye on this one. It might get interesting for those who are asset rich and cash poor, particularly if property prices are falling
The Stamp Duty ‘holiday’
Let’s be fair, it’s a bribe which has worked and has boosted the property market, probably artificially, with record numbers being achieved.
As we’ve all seen there are already significant delays with property transactions with lenders and conveyancers coming under pressure ahead of the March 31st deadline.
Prediction: While the Housing Minister is on record as saying the scheme ‘won’t be extended’, I don’t think too many of us will be surprised if that becomes just the next in a long list of U-turns
Landlords will adapt, as they always do, and may well just decide to hang on to their properties, probably depending on their debt to equity ratio.
Here’s the thing — If property prices fall, as many predict, then the tax cost of selling will also fall.
Maybe it’s time for a review of your existing tax and associated planning because by maximising every legitimate allowance and exemption, and by utilising tax planning enabled by UK legislation - all listed on our website at rethink.tax/secret-sauce - there are plenty of opportunities to optimise your property portfolio for the benefit of you and your family.
