Capital Gains Tax up to 40%!

Procrastinator333

It will really come down to the intent of the government and HMRC. If they want to leave loopholes, they will. But if they want to close them, they will. There isn't much point in speculating on how you could structure it to avoid tax, if the intent is to collect the tax, the taxman just falls back on the line that any thing done solely to avoid tax is not allowed and will be ignored for the purposes of tax calculation.

E.g. Technically, what is to stop you setting up a company, and asking your work to pay "consulting services" to your new Ltd company. Then just pay your self dividends. Hey presto, a higher rate tax payer has just reduced their tax rate. Works in theory, but the taxman says no. This is an artificial arrangment and they slap down both the employer and employee.

If the intent is there, they will just do the same thing. Set up a ltd co, sell it piece by piece, gift it, etc etc, they can ignore any and all schemes if that is their objective.

If this is true and CGT is going to 40% for second homes, btl etc, I think this could have a fair impact. Personally, if I were a btl owner, sitting on say £500k of gains, I would want to cash that in and crystalise my profit with an 18% tax rate.

Now if I still wanted to play the BTL game, I may then just buy more properties with all that cash, so it may just be swings and roundabouts. Say that £500k costs £10k selling costs, then to replace it, another £20k buying costs.

18% tax is £90k. So even after doing this I would still be £60k up. It is more complicated than this because of all those various reliefs and interacts, but when the numbers get crunched, a CGT rise to 40% has the potential to create a very large incentive to sell and crystalise profits in any asset class impacted by the change. Maybe this impact is mitigated if the sellers then just buys something else, but any person sitting on those sort of gains who doesn't explore it in detail with an accountant is in my opinion a fool.

StevieJ

Procrastinator333 wrote: »

18% tax is £90k. So even after doing this I would still be £60k up. It is more complicated than this because of all those various reliefs and interacts, but when the numbers get crunched, a CGT rise to 40% has the potential to create a very large incentive to sell and crystalise profits in any asset class impacted by the change. Maybe this impact is mitigated if the sellers then just buys something else, but any person sitting on those sort of gains who doesn't explore it in detail with an accountant is in my opinion a fool.

They would be better off exploring with an estate agent because they only have 50 days to sell, after the then I can see a freeze in BTL sales. BTW it could be 50% i.e. = to the top rate.

Procrastinator333

StevieJ wrote: »

They would be better off exploring with an estate agent because they only have 50 days to sell, after the then I can see a freeze in BTL sales. BTW it could be 50% i.e. = to the top rate.

Maybe, maybe not. Say the spectre of this tax hike causes BTL landlords to pile out, that drives prices down in the short term, they take a hit. But it then transpires there are ways around it, they have just sold and re-bought, incurred all the costs, taken a hit on price and now find none of it was needed.

Anybody with those sort of gains should spend £500 talking to a specialist tax accountant in that field. It may generate the greatest return on investment they ever make.

If this is a serious plan of the government, they really shouldn't leave a window. They should say nothing more, then make it effective immediately when the budget is announced. That avoids tax driven sell offs that a) artificially drive down prices and b) means they don't miss out on the tax revenue.

Now putting my VI hat on, I hope they announce it will be effective from 12 months time and there will be no loopholes. That would be good. But I don't see it.

StevieJ

My only point was advice or not it is difficult to sell in 50 days unless you take a hit at auction.

Procrastinator333

StevieJ wrote: »

My only point was advice or not it is difficult to sell in 50 days unless you take a hit at auction.

Sorry, miss read your previous post.

That may create a short term drop in prices as some may rush to sell. It may also not be possible to get much in the way of advice until detailed legislation is available, so it may be a bit of a gamble either way.

But if they do make this change, they must surely make it effective immediately, in which case any impact on prices is very short term. There may still be a longer term impact in that it is not so beneficial to hold property for tax reasons, but that would be a slower change,

If they set it up to be effective in say 12 months time, depending on the detail, they may create the crazy situation where a person sitting on a btl portfolio, or any other affected asset class can sell at a 10% loss on market price, pay buying (assuming they buy back in) and selling costs and still be in a better position than having done nothing solely because of the tax implications. While my VI means I would like to see this, it is just nuts and I can't believe they would do this.

If it is to be done, lock it in hard and fast, no loopholes.

Maybe this does matter to the BTLer, maybe it doesn't. Not possible to form a conclusive position. Happy gambling BTLers!

Thrugelmir

zarazara wrote: »

Its about time farms had to pay Inheritance Tax. They can pass the farm on to their heirs free of IT ,but its usually a farm and farmhouse with fantastic views and worth a fortune. As they have had ££££££ of tax payers subsidies over the years the farmers just do better and better and better despite all the whining they do.

You show a considerable lack of understanding of running a farm as a business. The view from a tractor while spending hours ploughing fields, laying fertiliser, planting seed and harvesting loses its appeal after a while.

Thrugelmir

Procrastinator333 wrote: »

Maybe, maybe not. Say the spectre of this tax hike causes BTL landlords to pile out, that drives prices down in the short term, they take a hit. But it then transpires there are ways around it, they have just sold and re-bought, incurred all the costs, taken a hit on price and now find none of it was needed.

Anybody with those sort of gains should spend £500 talking to a specialist tax accountant in that field. It may generate the greatest return on investment they ever make.

If this is a serious plan of the government, they really shouldn't leave a window. They should say nothing more, then make it effective immediately when the budget is announced. That avoids tax driven sell offs that a) artificially drive down prices and b) means they don't miss out on the tax revenue.

Now putting my VI hat on, I hope they announce it will be effective from 12 months time and there will be no loopholes. That would be good. But I don't see it.

Increase in capital gains tax rates may not be the only the change to affect BTL. I would hedge my bets that a restriction in offsetting interest payable against rental income will also come into force.

lostinrates

Thrugelmir wrote: »

You show a considerable lack of understanding of running a farm as a business. The view from a tractor while spending hours ploughing fields, laying fertiliser, planting seed and harvesting loses its appeal after a while.

TBH, it would be commuting at all hours to let animals in/out or milking and feeding that would put me off. and sick animals, crikey dealing with sick animals with a twenty minute commute in bad weather.....no way. On the plus side animal products would be a lot more expensive. I suppose, and we'd eat less of it

Malcolm.

Thrugelmir wrote: »

You show a considerable lack of understanding of running a farm as a business. The view from a tractor while spending hours ploughing fields, laying fertiliser, planting seed and harvesting loses its appeal after a while.

I know some top lawyers and bankers who own farms, they have very little interest in the farming side of things and pay people to manage the business.

lostinrates

Malcolm. wrote: »

I know a lot of top lawyers and bankers who own farms, they have very little interest in the farming side of things. They pay people to manage it.

Local governments still own a fair few farms too.

The owner ship of farms is tricky. I haven't resolved it my mind. often, although it can stick in the gullet a bit, its the banker type farms which have great environmental practice...if there is rural interest. skills like drystone walling, which, for example a tenant farmer, couldn't really justify in expense, are maintained, hedges are sometimes laid not just cut. All this provides far more employment, enhanced environments for wildlife etc, as well as ''costodianship'' of th country side....a good point if a detestable phrase.