PING is set to become the norm amongst second homeowners, say tax experts, as they look to avoid paying the government’s planned increase in capital gains tax.
“Flipping homes is a real possibility for second home investors and is one way of avoiding capital gains tax,” said John Whiting, president of the Chartered Institute of Taxation.
The practice, in which secondary homes sold for profit are redesignated as primary homes to avoid paying tax, caused outrage during the expenses scandal, when MPs were found to be using the ruse to dodge taxes on property sales profits.
Some tax experts warned that the government would crack down on individuals changing their main residence in order to escape the tax.
“Everyone, from amateur property developers and accidental landlords to newly married couples who previously both owned property, could find themselves losing out if the government tightened up the rules,” said David Hollingworth of L&C Mortgages.
Chancellor George Osborne is widely expected to increase capital gains tax (CGT) in next month’s emergency budget.
The chancellor was probed last year by the Parliamentary Standards Commissioner for allegedly claiming a second home allowance on his main home.
CGT is currently set at 18 per cent, with the first £10,100 of gains every year tax free. But the Lib Dems are pushing for the rate to be raised so that people pay CGT at the same rate they pay income tax. Meanwhile the tax-free amount could drop to £2,500.
The change would mean basic rate taxpayers would pay Capital Gains Tax at 20 per cent and higher rate taxpayers would be charged at 40 per cent.
Workers who save into a company share save scheme, and pay CGT on the profit, could also be hit.