Lawyer warns against selling homes due to CGT hike

Wealth management lawyer Moore Blatch is warning investors not to rush into selling property ahead of the proposed rise in Capital Gains Tax.

The government announced plans last week to increase CGT from 18% to 40%.

But Moore Blatch says that even with the proposed rise in CGT many investors would be better off holding onto their property, unless they were planning a sale within the next 12 months.

The firm adds that those who want to keep property for retirement planning or inheritance should consider putting them into a trust as this could remove capital gains issues.

Moore Blatch cites Land Registry data which shows that prices have risen 7.5% over the last 12 months.

If this trend continues, the lawyer says investors could be financially worse off if they sold now rather than in a year’s time, despite the doubling in the rate of tax.

For example, an investor selling a £200,000 property now with a capital gain of £50,000 would be liable for £7,182 CGT at 18%, taking into account the personal allowance. The net worth of the property would then be £192,818.

But if property prices increased a further 7.5% over the next 12 months, the property would be worth £215,000 and the gain would be £65,000 liable for £21,960 of CGT at 40% after the personal allowance had been deducted. The net worth of the property would therefore be £193,040 – more than it would have been the year before.

David Charlesworth, head of wealth management at Moore Blatch, says: “Anybody that is running property within a business should seek tax advice as there are likely to be tax changes that need consideration such as business property relief, agricultural property relief, using inheritance tax and trusts for estate planning.

“We would advise against making hasty decisions especially with regards to any CGT rises as the capital appreciation is likely to outweigh any increased tax liability.”