Investors spooked by Chancellor’s £25bn tax grab now look to sell up

Cuts to dividend and capital gains benefits panic portfolio holders, say Lauren Almeida and Melissa Lawford

Savers have overwhelmed their financial advisers with calls, emails and panicked texts as they scramble to sell their investments to protect their wealth from Jeremy Hunt’s £25bn tax grab.

Mr Hunt, the Chancellor, last week outlined plans to raise the tax burden to its highest level since 1948, shrinking tax-free allowances for capital gains and dividends in a major blow to investors, pensioners and buy-to-let landlords.

Many are now bringing planned sales of assets forward to beat tax changes that come in next year.

Felix Milton, a financial adviser in Barnstaple, Devon, said that within hours of Mr Hunt’s speech clients were calling to discuss selling their investments and second properties. “They are panicked – they now suddenly have less than six months until April before new tax rules come into force,” he said.

“Many retired people have built portfolios designed to pay dividends to help them with their income. Now the allowance will be shrinking to as little as £500, that strategy has gone out of the window.”

Under Mr Hunt’s new proposals the tax-free dividend allowance will be cut to £1,000 in the new tax year and to £500 the year after.

Greg Harris, a financial adviser from Bath, said the paltry dividend allowance would force many to rethink their retirement strategy.

“It’s adding even more pressure on pensioners,” he said. “They have already had to put up with so much volatility in the past six months. I’m concerned that this is just the beginning.”

Mr Milton added that changes to capital gains allowances had spooked many of his landlord clients. Capital gains tax is charged on profits when an asset is sold or given away.

Higher-rate taxpayers pay CGT at 20pc, but 28pc on residential property. The point at which capital gains are taxed will be cut from £12,300 to £6,000 in April and to £3,000 in April 2024. “One of my clients has three buy-to-let properties but they want to start selling them because they do not want to get hammered by capital gains tax,” Mr Milton said.

Adam Kingswood of Kingswood Residential Investment Management, a buy-to-let specialist in Nottingham, said small-scale and older landlords had been calling to ask whether they should quit the sector now. “Some have rung on the basis of the CGT changes, asking if we think they should fasttrack sales. Some are bringing sales forward,” he said.

One, he said, was a retiring landlord who was selling one property a year but now planned to sell two this tax year as a result of Mr Hunt’s announcement. Another small-scale landlord is bringing a sale forward. “He doesn’t want to pay the extra tax on principle so he is planning to sell now,” Mr Kingswood said.

Those who want to sell will need to

‘He doesn’t want to pay the extra tax on principle so he is planning to sell now’

act fast. “If they don’t put the property on the market right now, they won’t be able to sell by April, especially with Christmas in the middle,” he added.

“For a lot of landlords, this will be something that will trigger them to sell. It will be a factor that pushes landlords out of the market.”

Landlords who own properties via limited companies will not be affected by the CGT changes as they pay corporation tax on their sale profits, but they could be affected by the cut to the dividend tax allowance. “It might as well be zero, it’s ridiculous,” Mr Kingswood said. However, this tax change is so small that it is unlikely to change behaviour, he added.

Joseph Watt, 61, and his wife own three buy-to-let properties in Milton Keynes. “We are trying to decide if we should sell up or if we should incorporate into a limited company in stages,” he said, although he said they were leaning towards incorporating. This would also allow them to offset their mortgage interest against their tax bills.

But the process of incorporating is considered a sale and a purchase in the eyes of the taxman, which means landlords have to pay both stamp duty and CGT. Changes to the CGT threshold mean some landlords may opt to incorporate and pay up now to avoid a larger bill further down the line.

Mr Watt, who spoke using a pseudonym, said they might qualify for “incorporation relief ”, which would reduce the tax bill. Because they plan to hold the properties for a long period, it may be better to pay CGT now rather than wait until their properties have increased in value any further. Because they own the properties jointly, they have a combined tax-free allowance of £24,600, which will shrink to £6,000 in 2024.

Anyone who sells now could find themselves in a crowded marketplace. Tim Coen of the North Property Group, a lettings and buy-to-let investment agent, said the enormous jump in mortgage rates following the mini-Budget had already triggered a rush to sell.