Tax Changes that the Next Government Could Bring
Approaching the general election, there are many proposals surrounding taxes and housing. It seems the political parties are trying to limit the amount people can earn from property, especially those with expensive assets.
If you own a house, here are the five main taxes you should know about:
Capital Gains Tax (CGT)
At present, if you own your home and decide to sell it, you do not have to pay CGT. If you own a second or more houses, you must pay 18% if you a low-rate tax payer, and 28% if you are a high-rate tax payer.
These are some of the suggestions for CGT:
- To charge CGT on all homes.
- The Liberal Democrats have proposed taxing at 35%.
- For CGT to match income rates, for example, 20%, 40%, and 45%.
Tax Changes that the Next Government Could Bring
- The Lib Dems are also suggesting that the CGT allowance decreases from £11,000 to £2,500 a year.
Mansion tax
The two mansion tax proposals are from Labour and the Lib Dems.
Labour would impose the tax on homes worth £2m or more and this will grow in line with the average increase in prices, so the amount of people charged should not rise. If you are charged the tax but earn less than £42,000 per year, you can deter paying until the property is sold. It is thought that the mansion tax will cost £250 per month and will be in a banded system.
The Lib Dems have just changed their mansion tax proposal. The cost would begin at £2,000 per year. Read more about their plans here: /lib-dem-mansion-tax-bands-revealed/.
Personal allowance
The plans around this area would be positive for all, including landlords. Especially benefitting people on low incomes, the Conservatives and Lib Dems would raise the limits on what you can earn without paying tax.
In 2010, the limit was only £6,475 and now it is £10,600, which is a significant leap. For property investors, £10,600 is a lot of rent to collect tax-free.
The Conservatives wish to increase this to £12,500 by the end of the next parliament.
VAT on repairs and renovations
It is hoped that VAT will drop to 5% on repairs and renovations on properties, either a home or rental accommodation. The current charge is 20%, which means the tradespeople obliging the law are more expensive, as they pay the correct amount.
This can lead to more people using rogue tradespeople, as their quotes are lower. If the VAT is dropped, it will be fairer for all.
Inheritance Tax
Many parties are proposing more tax for property and landlords, but the Conservatives will increase the Inheritance Tax threshold to £500,000, which would benefit lots of families. Many will not have to pay the tax at all.
The current threshold is £325,000 but has not been increased for many years. However, during this time, some parts of the country have experienced substantial property price rises which cause people to pay Inheritance Tax.