International think tank, the OECD, called the “decisive” Conservative Liberal coalition’s emergency Budget “courageous”.
The Budget had promised to be tough, delivering cuts in public spending and tax rises intended to start the long haul to drag Britain out of an economically perilous situation. Osborne said in the speech that this was a Budget that would “pay for the past and plan for the future”.
The measures announced focused heavily on cuts in the public sector, a review of public sector pensions to be lead by John Hutton, tax rises which will hit every tax-payer in the country and the slashing of welfare benefits.
Of those that affect the mortgage market specifically, the most commented on by industry pundits was the uplift in Capital Gains Tax from a flat rate for everyone of 18%, to a flat rate of 28% for higher rate earners and a continuation of the flat rate of 18% for lower and middle income earners.
After much speculation over the timings of any change in CGT, the Chancellor announced that the changes would be material from midnight on the night of the Budget, allaying property industry fears that the market would suffer a flood of buy-to-let property after the Budget.
Further details included entrepreneurs seeing their CGT payable at the lower rate of 10% on the first £5 million of income, a rise from £2 million where the threshold kicked in under Labour. And the Annual Exempt Amount for CGT will remain at £10,100 this year and will continue to rise with inflation in future years.
Despite industry calls for taper relief, Osborne rejected the reinstatement of a complex regime, calling CGT: “one of the most chaotic areas of tax that the new government inherited from its predecessor”.
Jonathan Samuels, CEO of property finance specialists, Drawbridge Finance, said: "The rise in CGT to could have been worse. Before the budget many had suspected it could even go as high as 50%. However, at the new level it will still hit many buy-to-let property investors.
"With CGT at 28% for higher rate taxpayers, it still makes sense for them to purchase property in their personal name. If CGT had gone up to 50%, it would have made sense to buy through a limited company.”
Graham Kinnear, managing director of Landlord Assist believes that with the increase not as bad as first thought, property investment will remain a sound financial proposition.
He said: “The property investor needs to be encouraged to build and grow a portfolio, and a tax system whereby one party takes all the costs and risks and yet the other takes half the profit is clearly unfair. Whilst any rise in CGT is inevitably a blow to landlords, we are delighted that the financial incentive for property investment remains.
“Landlords tend to enter the buy-to-let market knowing that property is a long-term investment rather a short-term gain. We do not believe that this rise in CGT will cause too much disruption to the sector.”
But Tony Bernstein, tax partner at HW Fisher & Company chartered accountants said the changes are deeper than they seem.
He said: “On the surface, it appears that the 28% rate will only affect higher earners whereas, in reality, people on lower incomes could also easily be caught by it. The 18% CGT rate for people on basic rate tax will increase to 28% if the gain, when added to their income, pushes them over the threshold into the higher rates of tax."
