Brokers and lenders claim plans to raise capital gains tax would deliver a “further blow” to the beleaguered buy-to-let sector.

There has be widespread speculation that the chancellor Rishi Sunak is planning to reform CGT, aligning this tax with higher income tax levels to help pay for the pandemic.

The proposals to align CGT and income tax has previously been put forward by the Office of Tax Simplification. This change would see this the CGT charged on the sale of a BTL property or second home increase from 10 per cent to 20 per cent for basic-rate taxpayers and from 28 per cent to 40 per cent for higher rate taxpayers. This would be increased to 45 per cent for additional rate taxpayers.

In reality though many are already pushed into the higher-rate bracket for CGT as the proceeds from the sale are added to the homeowner’s other income for the year to determine which rate is paid.

At the same time, the OTS is also suggesting reducing the threshold at which this tax is paid, so CGT would be levied on gains of more than £5,000 rather than the current threshold of £12,500.

There is concern that much of the money raised through such a move would come from the buy-to-let market. Vantage Finance, founder and managing director Lucy Barrett says it would be a “real shame” if the government introduces such measures which she says could inflict lasting damage on the sector.

She says: “This will be a further blow to landlords, after a raft of tax and regulations changes which have impacted negatively on the sector.

“In many ways landlords are seen as easy targets, but they are not an endless pot that the government can keep raising revenue from.” She says this could drive many from the BTL sector as if it becomes financially unviable.

She points out this could have a negative effect on tenants, as rents may increase if there is less privately-rented accommodation available.

She adds: “The government has made it clear it wants a more competitive market for owner-occupiers, but a flood of BTL properties coming to market could have a negative impact on house prices. This could also impact many existing homeowners in the residential market.”

And Bespoke Finance founder Adam Hosker says: “The data is indisputable. An increased tax on an activity is a disincentive on the number of transactions that tax can be charged on.

“This is nothing new to Conservatives, as an ingrained mantra of the party. As CGT is levied on the sale of a property. The long-term outcome will be fewer properties for sale, either on the market or to sitting tenants, from BTL landlords, second homeowners or commercial landlords.”

Hosker adds: “The National Residential Landlord Association has a proposal for them: CGT should be reduced where a landlord is selling the property to a sitting tenant. This meets two government goals of increasing homeownership and increasing tax Intake, given an increase in the transaction quantity.

“NRLA research says that the current CGT reduces landlord sales. The proposed plan to double them will add more weight to buy and hold strategy,” he concludes.

WMT Chartered Accountants managing partner Andrew Williamson comments: “There are some aspects of the CGT regime that do perhaps need reform, and the government clearly is keen to find ways to increase taxation revenues.

“We are, however, concerned about the unintended consequences.”

“Any change to the taxation system and how that impacts the UK property market will cause ripples across the economy.

“People may sell property early before the change is introduced, or be reluctant to sell after the change is introduced.

“Either way, the housing market could be distorted and it may not be beneficial to those wishing to get onto the housing market if people owning second homes, or BTL properties are reluctant to sell them due to higher tax levels.”

Meanwhile, lender Pepper Money sales director Paul Adams adds: “An increase in CGT would certainly be a major consideration for some BTL investors and would act as further encouragement for landlords to hold their investment in a limited company structure.

“The market has been moving in this direction for some time now and there are lots of competitive mortgage options available to limited company borrowers.”