Top five tax changes that might happen post the election
There are more and more taxes being proposed on housing to try and curb the amount people can earn from property, especially the wealthy.
Here are the five main taxes to be aware of that could help – or hinder – your property ownership:-
Capital Gains Tax
Currently when you own a home, if you live in it and sell it, there is no capital gains tax to pay. However if you have a second or more home, you pay 18% if you are lower rate tax payer and 28% for higher rate tax payers.
There are some tax suggestions which would change this:-
Charge capital gains tax on all homes
Charge capital gains tax at 35% (Lib Dems)
Change CGT to match income rates ie 20%; 40% and 45%
Lib dems also suggest the CGT allowance drops from £11,000 to £2,500 per year
There are two proposals for mansion tax, one from the Lib Dems and the other from Labour:-
Labour will charge it on homes worth £2million or more and this will rise in line with the ‘average rises in prices’ so the number of those charged shouldn’t increase. For those who can’t afford to pay (earn less than £42,000 per year) they can defer the tax until the property changes hands.
The cost is expected to be around £250 per month and will work on a banded system.
The Lib Dems mansion tax proposal has just changed and they are suggesting the introduction would be staggered and would start at a cost of £2,000 per year.
This is the one bit of good news for all, including landlords, particularly those on lower incomes as the Conservatives and the Lib Dems are keen to raise the limits of what you can earn without paying tax.
This is especially useful for couples of which one of you is a lower tax payer and if you haven’t had a tax review, then now is the time to do it!
Back in 2010 it was just £6,475 and today it’s £10,600 which is a massive leap in being able to earn money without paying any tax – and £10,600 is a lot of rent, free of tax you can earn.
After the election the Conservatives have said they will increase this to £12,500 by the end of the next parliament – if they get in of course!
Will VAT finally fall to 5% for repairs and renovations?
A really daft rule is charging 20% VAT for work on your property – be it your home or on an investment property. This basically means government policy supports the rogues as it:-
Makes the ‘good guys’ 20% more expensive because they charge VAT
They are then another 20%+ more expensive because the good guys pay income/corporation tax and things like national insurance!
The hope is very much that the next government will see sense on this renovation tax. It basically prevents people from making repairs and when they do, it results in the rogues being rewarded for tax avoidance and the reputable trades people being penalised as their quotes are always higher because they abide by the law!
Will Inheritance Tax be changed?
While many parties are looking to tax property ownership and especially landlords more, the Conservatives are looking at increasing the tax threshold to £500,000 which would be helpful to many families, cutting them out of inheritance tax altogether.
Currently the threshold is £325,000 but hasn’t been increased for years – in the meantime, although not everywhere, better off parts of the country have seen significant property price rises which will make people end up paying inheritance tax.
The idea is that if you have a mum and dad, they can pass on the first £1 million of their wealth to you, combining the two £500,000 thresholds.
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