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From Daily Mail:

Second home bonanza as Darling hands wealthy a massive tax break
Last updated at 15:38pm on 10th October 2007




Budget slip: Alistair Darling has handed the wealthy a break



The Chancellor has handed a massive tax break to more than a million second home owners, it's been revealed today.


The tax rate on profits from sales of holiday homes or buy-to-let investments has been slashed from as much as 40 per cent to 18 per cent from next April.


The move fuelled speculation at Westminster that Labour rushed out a "botched" pre-Budget report in response to Conservative tax proposals.

There were further signs of disarray when Gordon Brown was humiliated by David Cameron in a Commons clash today.

The cut in capital gains tax announced by Alistair Darling yesterday was mainly aimed at increasing the tax paid by wealthy private equity bosses who currently enjoy a 10 per cent rate.


But tax experts said it had inadvertently handed a major tax break to second home owners and will save them thousands of pounds when they sell. Andrew Goldstone, head of personal tax and estate planning law at Mishcon de Reya, said: "It's a massive tax cut for property owners. Hardly what you'd expect from a Labour government."


Owners pay CGT - a tax on the difference between the price they paid for an asset and the price they sell it for - on all homes except the one they live in. The rate is currently 40 per cent for the first three years that the property is owned, falling by two per cent a year to a minimum rate of 24 per cent after 10 years of ownership.


As well as hitting private equity bosses, Mr Darling's new flat rate of 18 per cent is designed to simplify the system by bringing the rate for business and non-business assets such as holiday homes in line with each other.


Experts said the move looks certain to boost the property market next year, although it could mean a dramatic drying up of supply until April.


Liam Bailey, head of residential research at Knight Frank, said: "This will help underpin demand for second homes and prices of second homes. However, the second home market prices are very expensive in most parts of the UK and affordability is the key to demand."


Someone buying a holiday home or buy to let property for £200,000 and making a taxable gain of £100,000 previously faced a bill ranging from £40,000 to £24,000. Under the new regime, they will only be liable for £18,000, a saving of up to £22,000.


Chris Norris, policy officer for the National Landlords Association, said: "We're very happy with what we've seen. Our members will be able to understand the system more clearly and make some savings."


Mr Darling also made changes in inheritance tax to make it easier for married couples to shelter up to £600,000 from the taxman. The tax free allowance for couples will go up to £700,000 by 2010.


Richard Proctor, partner at Grant Thornton, said: "Overall, it's very clever - it helps to deal with the inheritance tax problem for Middle England."