- CGT rate on property cut by 4 percentage points for higher rate taxpayers
- Tax relief regime for holiday lets abolished
Chancellor Jeremy Hunt delivered a shake of property taxes in today’s Spring Budget, with a capital gains tax cut and the abolition of tax relief on holiday lets.
The higher capital gains tax (CGT) rate on residential property, currently at 28 per cent, will be reduced to 24 per cent. CGT on property sales is paid on non-permanent residences such as buy-to-lets, second homes and holiday lets.
The rate is higher than on other assets such as stocks, where higher rate taxpaying investors are charged 20 per cent. Hunt said the Treasury and OBR analysis suggested a lower rate of tax would increase sales and boost revenue by increasing the number of sales. The CGT property rate will remain the same for basic rate taxpayers at 18 per cent.
Meanwhile, the furnished holiday lets (FHL) regime, which offers tax advantages to those who let out a property as a holiday home, will be abolished in April 2025. Hunt said this is because holiday lets reduce the availability of long-term rentals for residents. At the moment, landlords who use the furnished holiday lets regime can deduct the full cost of their mortgage interest payments from their rental income and potentially pay lower capital gains tax when they sell. About 127,000 properties in the UK are registered under the FHL regime.
The combination of the two policies could be seen as another move to push private landlords out of the market. Many buy-to-let investors have turned to the holiday let market as a way to boost profits following the withdrawal of mortgage interest relief on residential lets. The removal of the relief, plus the further incentive to sell up and pay a lower CGT rate, could see rental properties come onto the market. However, those incorporated as a limited company will be unaffected. Budget documents said the two policies combined would raise £600mn by 2028-29.
Christopher Springett, tax partner at Evelyn Partners, said the CGT cut went against talk about aligning CGT with income tax rates. But he added: "For those who are looking at property as an investment beyond their main residence, the CGT rate on residential property remains 4 per cent higher than the rate applied to most other asset classes, meaning that property investments do need to return more in terms of capital growth to ensure post-tax returns are competitive with, say, a portfolio of stocks.”
Shaun Moore, tax and financial planning expert at Quilter, said the scrapping of holiday let relief would be "deeply unpopular with some core Tory voters”. Quilter calculated that an average FHL could lose £2,835 a year in tax as a result – this was based on a property purchase price of £350,000, with an annual mortgage rate of 4.5 per cent and £20,000 rental income.
“This might result in a reduction in the number of properties available for holiday lets, which could impact local tourism,” he said. “On the other hand for locals living in areas with a high concentration of holiday lets this could help them afford properties in their hometowns.”
