What effect will tomorrow’s emergency budget have on home owners and in particular freelancers with a contractor mortgage?
Owners of second homes in particular are no doubt concerned about the rumours that George Osborne is going to increase Capital Gains Tax on non-business assets such as shares and second homes.
CGT currently stands at 18% and it is expected that this will rise to make it more in line with income tax. Therefore for high salaried individuals it could go up to 40%. There is even speculation in some quarters that it could go rise to 50%.
PricewaterhouseCoopers are expecting Osborne to introduce differential rates depending on how long an asset has been owned. The professional services firm said that speculative activity could be discouraged if the Chancellor levies the highest rate of CGT on assets held for less than 2 years.
UK chartered accountancy firm, Grant Thornton, points out that further tax rises will do nothing to help the ailing housing market. Recently foreign investors have been buying properties in the UK, attracted by the weak pound. The firm thinks that another rise in CGT will edge UK investors out of the market and leave the door open for more foreign investors to gather high rates of return.
One measure that they believe the chancellor might take is to introduce changes to “Private Residence Relief”. This relief allows property owners to sell their only, or main, home free of CGT. In recent years, property owners with more than one home have been varying their main residence in order to take advantage of this exemption. Grant Thornton says Osborne might tighten the definition of a main residence thus leaving more people moving home subject to a CGT charge.
A rise in the VAT rate could also hit the property sector. It is thought that any rise will also apply to new build properties and renovations.
One final potential measure that the accountancy firm thinks the chancellor may impose, that will affect the housing market, is a reduction in capital allowances. If this happens property investors would be unable to recoup as much of their costs and therefore their bottom line will be affected.
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