Tax break for second home owners
Updated on 10 October 2007
The Government has handed a massive tax break to millions of second home owners and buy-to-let investors, it has emerged.
The amount of tax that people pay on money made from the sale of a second property is set to fall from 40% to just 18%.
The move was announced by Chancellor Alistair Darling in his Pre-Budget Statement as part of moves to increase the amount of tax paid by wealthy private equity bosses.
Capital gains tax is currently paid at 40% on any money made on the sale of an asset, with the rate reducing to a minimum of 24% after 10 years.
But from April 6 2008 the variable rate will be abolished and it will be replaced with a flat rate of 18%.
This means that someone who bought a buy-to-let property for £100,000 and later sells it for £200,000 will only have to pay tax of £18,000, compared with a top rate of £40,000 and a bottom rate of £24,000 under the current regime.
Carolyn Steppler, private client tax director at KPMG, said: "At a stroke, from 6 April 2008 the capital gains tax they will pay on taxable profits arising from the sale of a second property is cut by over half, falling 22% points from a maximum of 40% to 18%.
"Investors no longer have to wait and they get a lower rate than the absolute minimum previously achievable - so they are clear winners here."
She added that second home owners could also benefit from the changes to inheritance tax rules, under which married couples and people in a civil partnership can leave assets worth up to £600,000 without being liable for the tax when the second partner dies.
At the same time from next January, second home owners taking on an empty property will see the rate of VAT they are charged on alterations and renovations cut to 5% after a minimum of just two years as opposed to the current three years.
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