Leading up to the budget it was widely speculated that the rate of Capital Gains Tax would be increased up to 40% or even 50%. The increase as from midnight tonight up to 28% for higher rate tax payers is therefore not as stringent as many commentators predicted.
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As widely predicted the rate of VAT will increase to 20% but not until January 4 2011.
There will be a direct benefit to the furnished holiday lets sector though the scrapping of proposals to abolish tax benefits under the FHL rules, which will be well received by people in that market.
The Chancellor also announced a wide range of public spending cuts. These measures will directly impact on the UK’s lettings and management agents.
Peter Everett, General Manager at CFP Software commented: “Today’s budget probably brings better news for letting agents than they expected.
“The increase in Capital Gains Tax is not as stringent as many predicted and with the rise taking effect immediately there will not be an opportunity for landlords to try to cash in an attempt to avoid higher tax bills. There should therefore be no ‘knee-jerk’ reaction in the market place. They may even be some landlords who decide to re-evaluate their position and withdraw their properties for sale and re-let instead as they expected a 40%+ rate.
“Longer term though it may discourage new ‘buy-to-let’ landlords from entering the market although we need to remember that it wasn’t that long ago that the rate of CGT was at 40%.
“The change in the VAT rate on January 4 2011 will mean that all agents will need to update their software systems to ensure accurate accounting beyond that date. CFP Software went through all of this at the beginning of the year when the VAT rate went back up to 17.5% updating over 2,500 customers and rest assured we will have an automated software update ready for the deadline on January 4.”