Autumn Statement: Capital gains tax and Inheritance Tax

Posted by James Greig on
Accelerated payment of capital gains tax on certain property sales have caught the headlines, although in reality very little has changed in today’s Autumn Statement.

From 2019, those selling second homes (i.e. property which is not one’s principal private residence), whether here or abroad, will have to pay the tax within 30 days of the sale rather than in the January following the tax year of the sale.  This is hardly a hardship since the seller has the proceeds of sale, and it was always an unexpected boon to have up to 21 months to pay the tax, during which time the amount of tax could be invested by the tax payer.

A lot more could have changed in the Autumn Statement but has not.  There was speculation that the rate of capital gains tax (currently 18 percent or 28 percent depending on a person’s top rate of tax) might change but it remains the same.

The tax exempt status of one’s own home remains the same, so is practice the change only affects those with investment properties or second homes.

Surprisingly, the change only affects residential property.  There seems no logical reason for not extending the 30 day payment rule to sales of commercial property owned by an individual, or stock exchange investments.  As a firm we recently held £600,000 for an extended period on account of capital gains tax on a sale of shares in a private company.  This produced just under £10,000 of interest for the tax payer before the tax had to be paid.  There was no point in paying the tax early, and in this regard the opportunity to take a turn on the money post the Autumn Statement remains the same.

Significantly for inheritance tax planning, nothing has changed regarding gifts of a second property down a generation which the law treats as a disposal triggering capital gains tax.   It remains the case that the family either has up to 21 months to pay capital gains tax on any gain since purchase, or the family can postpone the tax almost indefinitely by transferring the property into a family trust.

Second-home owners, who have arguably fuelled much of the continued rise in house prices, are clearly regarded as a soft target in this Autumn Statement.  An unexpected new 3% Stamp Duty Land Tax surcharge will apply on the purchase of second properties, frequently done as buy-to-lets. Those buying a £250,000 investment property before April will pay £2,500 SDLT.  From April 2016 there will be an additional £3,750 i.e. £6,250 SDLT in total.  Watch therefore for a surge in the investment property market and therefore additional SDLT take in the run up to the tax year end!

Inheritance Tax has not been touched any further since the Chancellor’s last Budget, including the long-standing favourable retrospective tax treatment of Deeds of Variation provided they meet the statutory requirements.  There had been some discussion of a review prior to the last election, but it seems increasingly unlikely that anything will be changed in this Parliament.

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James is the head of our Wills, probate, tax and trusts team based in the Thames Valley.

James Greig
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