Some political parties are keen to continue to promote home ownership, so are offering many incentives for people to get on the ladder, while many are now of the belief that ‘buy to let landlord’s and their investment is bad news for the market and that they should be ‘punished’ from a tax perspective.
Across the course of 12 blogs, I thought it would be useful to sum up some of the key housing policies which are being proposed, or being discussed as we speak. This is the ninth in the series.
There are various taxes applied to the residential property market, typically when owned over and above your main home. If you let a property, rent is treated as if it were income, so if you are a lower rate tax payer you pay a lower rate (as long as the extra rental income doesn’t take you into the next bracket).
If you own 50/50 with a partner who is on a higher tax rate, you can claim up to half the rent at a lower rate income tax and their share will be taxed at the higher rate.
The other tax on property when sold is capital gains tax. This is free for properties which are classed as your main home, but if you sell a property you have rented or invested in, it’s likely you will owe some capital gains, even if you lived in it for a period of time. The amount of CGT you owe depends on the level of your capital allowance left (currently £11,000 March 2015) and after this, it depends on whether you are a lower or higher rate tax payer. Lower rate tax payers pay 18% on the difference between the value of the sale price and the price you bought it for, minus any capital improvements and costs. Higher rate tax payers pay a flat 28%.
Bear in mind, depending on how property is disposed and other investments, this means you may end up being a taxed at the higher rate, even if you are a lower rate tax payer normally – so best advice is always seek help from a specialist property tax advisor.
So what property taxation are political parties proposing for the election?
The Lib Dems have one of the harshest recommendations which is to change CGT in two ways. Firstly they are considering reducing the CGT allowance from £11,000 to just £2,500 and secondly they are looking to align the CGT tax rates to income tax. So a higher rate payer would pay 35-40% rather than the 28% they would currently pay.
Both the Lib Dems and Labour are also considering a new ‘mansion tax’. The Lib Dems idea around mansion tax is to charge an annual tax on owners – unless they are pensioners, in which case they can delay payment until the property changed hands. As long as property prices increase at the same level as the ‘average’ then a £1.9 million home would never be charged the annual tax.
Labour’s version of the mansion tax is pretty similar and they would look to owners of properties of £2 million plus homes would be expected to ‘only pay an extra £250 a month’, others who own tens of millions of pounds will be expected to pay more.
From the Conservatives perspective, we haven’t really seen any suggestions of increasing property tax. To date they have reduced the number of people who pay stamp duty on a property, while increasing the rate for those who buy for over £937,000. There was even talk of raising the inheritance tax level at the last budget, but this didn’t materialise.
So the Conservatives seem very much to be looking at little change to property taxation while others look to tax property investment and those wealthy from property assets.
The reality is that depending on who gets into government, there is definitely a change of attitude towards people making money out of property – whether it’s homeowners or property investors. And there is a change of view that property price growth is a good thing. As such it’s likely that whoever gets into government in 2015, unless it is purely a Conservative victory, higher property taxes are on the cards.
