An increase to the Capital Gains Tax (CGT) threshold would be “another nail in the coffin” for buy-to-let (BTL) landlords and second homeowners, according to lettings and estate agent, Benham and Reeves.

This is if recommendations by the Office of Tax Simplification (OTS) to change the tax threshold are introduced.

CGT is the tax paid on the profit of an item sold that has increased in value and applies to gains made on the sale of second homes and BTL properties, but not initial households. Currently, the rate of tax stands at 18% for basic rate taxpayers and 28% for those in the higher rate threshold, with tax exempt on the initial £12,300.

However, the OTS has recently called for CGT to increase in line with income tax rates to 20% at the basic rate and 40% at the higher rate, while also lowering the initial amount exempt to just £2,000.

Research from Benham and Reeves revealed that in the last decade, the average UK house price has increased from £168,703 to £251,500 – meaning the capital gain of an average second home or BTL investment during that time sits at £82,797.

Based on this example timeframe and when removing the exempt sum of £12,300, selling in the current market would see a lower rate taxpayer pay £12,690 in CGT, while a higher rate taxpayer would pay £19,739.

However, should the OTS changes come into play, Benham and Reeves calculated that the tax owed would climb to £14,100 for a basic tax rate payer, while those in the higher threshold would see it increase to £28,199 – a jump of £8,460.

Benham and Reeves director, Marc von Grundherr, commented: “The proposed changes from the OTS would act as nothing more than another nail in the coffin of the BTL sector, in particular.

“As it stands, landlords and second homeowners are already paying a substantial sum on their investment due to the increased value of bricks and mortar. A further increase in capital gains rates is nothing more than a blatant attack on them, especially those in higher tax thresholds.

“The government seems intent on targeting landlords and second homeowners as the cause of the current housing crisis. The reality is, their failure to build enough homes is the driving cause and so perhaps this should be their area of focus.”

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