Buy-to-let investors were handed an unexpected gift in Alistair Darling's pre-budget, says Manjit Deol, of Edgbaston property investment firm Claremont.
Britain's buy-to-let investors and those owning a second home were among the big winners in Chancellor Darling's pre-budget announcement.
From next April they will pay capital-gains tax (CGT) on profits at a rate of just 18 per cent, compared with up to 40 per cent at present.
Under the current regime, a top rate tax payer pays 40 per cent tax on the profits made on a second property. If the buy-to-let investor held the property for many years, the capital gains tax rate had taper relief applied.
This would reduce a potential tax of 40 per cent down to 24 per cent after ten years. The proposed flat rate of 18 per cent will apply after just one day of ownership.
According to the Revenue & Customs, there are an estimated 650,000 people with buy-to-let or second homes. If they sell after April next year they will save an average of £6,000 in tax. With a bit of extra tax planning, you can reduce your liability even further. Married couples, for example, should pool their £9,200 allowances by owning a property jointly.
Analysts have warned that changes could lead to a surge in sales next year, exacerbating an expected downturn in the housing market.
My view is that they are wrong. Most buy-to-let investors are in it for the long haul. They are interested in long-term capital growth, not a quick killing.
The tax savings, though welcome, are in the scheme of things, hardly momentous, particularly if you have held your property for a long time.
Admittedly, there may be a bit of a rush to sell next April. Investors who were thinking of selling in the coming months will be wise to hang on until the tax regime changes. This may cause a bit of an artificial upsurge in sales next spring, but it's likely to be short-lived.
In my opinion, the changes will encourage more people into buy-to-let investment. The more favourable tax regime will undoubtedly prove attractive, particularly now that property has parity - in tax terms - with share investments, but there is one sector of the property investment market who could be feeling short changed by the new tax proposals: those with a holiday let.
These are regarded as business assets, and, under the current regime, subject to just 10 per cent tax if the property had been owned for two years.
The flat rate of 18 per cent CGT therefore means those with holiday lets could potentially be worse off.
However, the tax can be mitigated by rolling over the profits into another business, including another holiday property. The problem only really comes when you wish to cash in the asset.
Lest it be thought that Darling is the new best friend of the buy-to-let investor, it is worth noting his gift was a by-product of his aim to crack down on the massive profits made by the private equity sector.
However, as a buy-to-let investor and adviser, I'm delighted by this unintended consequence.