New Capital Gains Tax rules will encourage property investors to operate as companies, a tax expert has said.
Nimesh Shah, partner at chartered accountants Blick Rothenberg, said: “The major reforms to CGT announced by the Chancellor will encourage investors in residential property to use company structures – exactly what the Government was trying to prevent when they started to reform property taxation in 2012 to discourage corporate ownership of residential property.
“The Chancellor announced that the highest rate of CGT would be reduced to 20% (currently 28%) but that the 28% CGT rate would continue to apply for capital gains arising on the sale of residential property.
“However, a sale of shares in a company which owns a residential property (or portfolio of residential properties) would be assessed at 20% CGT.
“With the restriction to interest relief for individual buy-to-let investors, the reduction to corporation tax to 17% from April 2020 and this latest change to CGT, investors in residential property will be further encouraged to use company structures.
“This could quite easily lead to a future market amongst investors to trade shares in companies owning residential properties which also have the benefit of attracting a lower rate of Stamp Duty.
“The Government needs to be mindful of the latest policy measures, which are certain to have a significant bearing on taxpayers’ behaviour to use corporate structures.”