Tax break to encourage second-home owners to sell
Capital gains tax cut to ‘fire up the residential property market’ while benefits for holiday lets are abolished
LANDLORDS and second-home owners will benefit from an investment profits tax cut designed to free up more houses.
The higher rate of capital gains tax (CGT) on property will be cut from 28 per cent to 24 per cent from April 2024 in a move the Government said would “fire up” the residential property market.
The Treasury said in the Budget documents: “This will encourage landlords and second-home owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time.” The rate changes will be legislated in the Finance Bill and come into effect on April 6. The lower rate of capital gains tax will remain at 18 per cent.
It means a higher-rate taxpayer making a gain of £20,000 on their second home will save £680 in tax, accountants said.
However, owners of second homes who let their properties out to holiday makers will be hit with a string of tax rises.
The “furnished holiday lettings” tax regime will be abolished from April 2025, raising £245million a year in a move the Government said would help “local people to find a home in their community”. The regime allowed holiday let owners to claim full mortgage interest relief and allowed for more generous tax treatment on capital gains.
The move brings holiday lets in line with the private rented sector and is expected to raise an estimated £300million for the Treasury.
Tax breaks on holiday lets had applied to landlords who make their properties available for at least 210 days a year, and let them out for at least 105 days a year.
Jeremy Hunt is betting on the policy change as a way to curb housing shortages in holiday hotspots such as Devon and Cornwall in response to complaints by councils and local people.
It follows a crackdown by Michael Gove, the Housing Secretary, who has previously said that seaside towns were in danger of turning into “permanent” Airbnb settings.
Chris Norris, the policy director at the National Residential Landlord Association, said that increasing taxes on holiday lets would “make no meaningful difference to the supply of longterm rental properties”.
He said the Chancellor’s cut to capital gains tax was “slightly misleading”, arguing that it “will be all but neutralised by the reduction in the annual taxfree allowance”.
The annual tax-free allowance for capital gains tax was cut from £12,000 to £6,000 last year, and will fall again to £3,000 from April.
Mr Norris said: “If you compare the tax on property gains at 28 per cent in 2022 to those post April – assuming the 24 per cent rate – you need to make a pretty substantial gain before you’re better off.
“A cut is welcome of course, but it seems like a little bit of smoke and mirrors.”