Is a landlord CGT increase coming?

The government’s next Budget isn’t until October, but rumours are already swirling that it could come with a hefty tax hike for landlords.

Capital Gains Tax (CGT) on rental property sales is currently set at 18% for basic rate taxpayers and 24% for those in higher brackets.  However, politicians are reportedly considering bringing CGT rates in line with income tax.

That would raise the rates landlords pay to at least 20% and 40% respectively – and if the current CGT surcharge for investment properties is kept, it would be 28% and 44%.

Other landlord taxes are also reportedly being considered, including introducing new income tax bands for rental income and requiring landlords to pay National Insurance on rent.

So far, Chancellor Rachel Reeves hasn’t committed to any of these plans, and is unlikely to do so until October.  

But the government’s Spending Review published this month makes it likely that some taxes will rise. And landlords are understandably nervous. A poll of landlords by the National Residential Landlords Association last month found that CGT hikes are their main worry at the moment – ahead of EPC changes and the Renters’ Rights Bill.

First clues from June’s interest rate decision

The glide path interest rates follow over the next few months may help the Chancellor make her decision. Lower interest rates reduce the cost of government borrowing, which means they don’t have to raise as much money through tax increases.

However, the Bank of England kept the interest rate at 4.25% at its June meeting. That means that the Monetary Policy Committee (MPC) will meet just twice more before Budget season. Economists predict that global uncertainty will encourage the MPC to hold rates steady for longer, so any cuts by then are likely to be small – making tax increases more likely.

But even if taxes rise, landlords won’t necessarily take the hit. The government is also reportedly considering reducing tax relief on pensions, simplifying inheritance tax and limiting salary sacrifice options.