Two million buy-to-let investors could face a “hidden” tax increase on the sale of their properties, following stealth changes to the Government’s proposed Finance Bill 2016.
At present, landlords selling an investment property have their profits classed as “capital gains”, and are subject to standard capital gains tax (CGT) rules.
Depending on whether they are classed as basic or higher-rate taxpayers, individuals will pay CGT at 18 or 28 per cent on capital gains from residential property sales, and 10 or 20 per cent on gains from commercial property disposals.
However, changes made in the Finance Bill 2016 mean that these profits will be treated like regular income, and as such, subject to income tax and national insurance contributions.
Experts have warned that these changes may push an individual taxpayer into a higher income tax band.
New legislation in the Finance Bill 2016 states that this will be the case in any event where land, or any property which derives from land, has been purchased with the intention of an owner gaining a profit from its eventual disposal.
The new tax liability will also apply to any land that is held as ‘trading stock’.
Catherine Dixon, chief executive of the Law Society, said: “By introducing a significant change in this way, the government is denying the public the chance to consider and comment on these proposals.
“The way these changes were introduced, in particular without consultation on the draft legislation before it was added to the bill at such a late stage, starts to feel like legislation by stealth.”