Landlords in London face an income tax trap if they cash in on the rise in value of their rental property portfolio.
The warning follows the government adding amendments to the Finance Bill that is due to go before the House of Commons on 5 and 6 September.
The changes are designed to make profits from the sale of a BTL investment or second home in London liable for income tax rather than capital gains tax as at present.
The Law Society says this means anybody who sells a property that is not classed as their primary residence could be forced to pay up to 17% more in tax.
It adds that the new clauses have been “slipped in” by the government at the Bill’s committee stage instead of being part of the formal legislation which is subject to a standard consultation period.
Law Society chief executive Catherine Dixon comments: “The way these changes were introduced starts to feel like legislation by stealth.”
The change is designed to prevent investors using offshore structures to avoid UK tax. However, the charges are not restricted to offshore structures and apply to UK-based landlords.
This could wipe out a significant amount of profit made on the sale of a rental home.
CGT on investment property sales is currently charged at 18% for basic rate taxpayers and 28% for higher rate taxpayers. This is payable on any profit earned on the property minus the £11,100 CGT Allowance and other reliefs available.
Income tax, on the other hand, is currently 40% for anyone earning more than £43,000 a year, rising to 45% for the highest rate payers.
