Home > News > Buy to let investors face income tax trap | Plaza Estates
buy to let investors face income tax trap

Buy to let investors face income tax trap

By Maurice Shasha  //  Thu 8th December 2016
Why profits from the sale of rental homes in Central London will be subject to income tax rather than capital gains tax.
Time is running out for landlords with rental homes in Central London who wish to avoid paying income tax on the profit made from selling a property that is not their primary residence.

The warning from the Law Society follows the government inserting new clauses into the Finance Bill that is due to receive its third reading in House of Commons before moving to the House of Lords.

The amendments mean profits from the sale of an investment property in Marble Arch, Knightsbridge and other parts of Central London that Plaza Estates has an in-depth knowledge of will be liable for income tax rather than capital gains tax.

The government says the changes will prevent investors who sell rental homes using offshore structures to avoid UK tax. However, the new tax rules will also apply to UK-based property investors and landlords.

If the new clauses remain in the Finance Bill when it receives Royal Assent, anybody who sells a rental or investment property will pay up to 17% more in tax.

CGT on investment property sales is charged at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

However, the increase in Central London property values over the past decade mean the basic rate allowance is often used up and the majority of the gain ends up taxed at 28%.

The basic rate of income tax is 20%, but this rises to 40% for anyone earning more than £43,000 a year and 45% for the highest rate payers. Most landlords selling property in central London will pay 45% income tax on the majority of their property profit.

The Law Society claims the new measures have been “slipped in at the committee stage” by the government instead of being part of the formal legislation which is subject to a standard consultation period.

It says: “The process is inconsistent with the government’s commitment to proper consultation on substantive legislation, and we do not consider the anti- tax avoidance elements of the proposal warrant departing from the usual consultation processes.

Law Society chief executive Catherine Dixon adds: “The way these changes were introduced starts to feel like legislation by stealth.”