proposed changes to Capital Gains Tax charges: good news for property investors

Primelocation.com believes that the changes to Capital Gains Tax (CGT) announced by the Chancellor on 9 October will have a strongly positive impact on the buy-to-let residential property market, which, in turn, underpins the housing market overall. The introduction of a flat rate of CGT at 18% will reduce the tax payable on gains realised when buy-to-let properties are sold.

For example, the Primelocation.com Prime London Price Index shows that residential property values have grown at an average of 27.5% since January 2005, producing substantial capital gains for many private landlords. A property bought for £1 million at the start of the period would have generated a gain of £275,000. The CGT on this at the prevailing rate of 40% would be £110,000 so that the net gain would be £165,000. At the new rate of 18%, the CGT will be just £49,500, producing a net gain of £225,500, which is 37% more. The net realisable value of the property moves from £1,165,000 to £1,225,000, an increase of just over 5%.

Primelocation.com’s CEO, Ian Springett, commented, “We would expect the change to stimulate new and increased demand for buy-to-let property and also to reduce supply as landlords who may have been considering selling decide to hold properties they already own”.