Capital Gains tax: buy-to-let investors must tear up retirement plans

CLAPTON

Horace_Wimp wrote: »

Am I missing something here?

Wasn't CTG just reduced from 40% to 18% a couple of years ago?

If that's true, then surely there was always going to be a great risk that it would go back up again at some time in the future

cgt was changed a few years ago

before that you were allowed indexation allowance (so inflation was allowed for ) and taper relief to encourage retaining investment for longer periods and yes the rate was higher
these were abolished and a single lower rate was introduced; so to simply increase the rate without allowing for inflation etc would mean much higher tax would be gharged.

Thrugelmir

silvercar wrote: »

I thought the aim of including BTL in retirement planning was to have the properties mortgage free by retirement and have the rental income as part of income stream. Seems more balanced than selling up and having your whole pension pot invested.

Agreed. Though many recent investors are on interest only mortgages so are dependent upon capital growth for a return.

With a million BTL mortgages and other single property households looking to downsize when they retire. The market could be flooded at some point in the future if this is the plan of the majority.

Primrose

I think carolt is grossly over-simplying the argument. Many people, seeing their pension schemes damaged after Gordon Brown's raid on them decided that they needed to look for another way of ensuring they had enough income in retirement to live on, so looked to the buy-to-let market as another solution. Many of them are probably not rich people, having taken out another mortgage on these properties and are now seeing yet another government screwing them in their attempts to fund their retirement and old age years without being a burden on the State.

All these people (and I don't own a buy-to-let property myself) may now end up losing a large proportion of their investment, having insufficient income in their old age and needing benefits so indirectly carolt will still end up funding them through her taxes.

dealsearcher

I have noticed that interviewers on the media are begining to realise the argument against a CGT rate rise. They are essentially two points:

1. CGT hits an investment of many years with a one year only tax allowance. It is unfair to compare it against an annual income of a similar amount as that has an annual allowance. The equivalent would be a cumulative annual allowance for CGT.

2. Selling property or shares is a discretionary transaction. Putting up the CGT rate would result in a reduction in transactions and quite probably a reduction in the CGT taken by the government. The politics of envy of taxing those rich so and so's may make you feel better but it won't work in reality. If it is supposed to fund a £17billion increase in the tax allowance then it won't do so.

The pragmatic approach must include taper relief and indexation for long term investments. After all it is supposed to hit the short term speculators is it not?

dealsearcher

Primrose wrote: »

Many people, seeing their pension schemes damaged after Gordon Brown's raid on them decided that they needed to look for another way of ensuring they had enough income in retirement to live on, so looked to the buy-to-let market as another solution. Many of them are probably not rich people, having taken out another mortgage on these properties and are now seeing yet another government screwing them in their attempts to fund their retirement and old age years without being a burden on the State.

All these people (and I don't own a buy-to-let property myself) may now end up losing a large proportion of their investment, having insufficient income in their old age and needing benefits so indirectly carolt will still end up funding them through her taxes.

Many of these people have also seen pension funds fall or even collapse, like Equitable Life. They would have felt that investing their pension money in property would have been, how could we say, prudent?

Thrugelmir

dealsearcher wrote: »

Many of these people have also seen pension funds fall or even collapse, like Equitable Life. They would have felt that investing their pension money in property would have been, how could we say, prudent?

Though I have opinions on GB's raid on pension funds, and the effect on my own SIPP and the wider impact on Company Pension Schemes. Residential property became an investment fad for a number of reasons. Not least the availability of cheap commercial credit and the lax lending criteria which allowed leveraging up. Together with the advantegous use of tax legislation.

I have continued to invest in my SIPP (despite GB's raid) and my ISA as that's my preferred option. I'm also have an Equitable Life Plan for which I may well now receive compensation.

Houses like pension funds will rise and value in value. Owning a few properties as ones pension fund carries an enormous risk. Diversification is a fundamental rule of investing.

carolt

Primrose wrote: »

I think carolt is grossly over-simplying the argument. Many people, seeing their pension schemes damaged after Gordon Brown's raid on them decided that they needed to look for another way of ensuring they had enough income in retirement to live on, so looked to the buy-to-let market as another solution. Many of them are probably not rich people, having taken out another mortgage on these properties and are now seeing yet another government screwing them in their attempts to fund their retirement and old age years without being a burden on the State.

All these people (and I don't own a buy-to-let property myself) may now end up losing a large proportion of their investment, having insufficient income in their old age and needing benefits so indirectly carolt will still end up funding them through her taxes.

As Thrugelmir points out, they did rather put all their eggs in 1 basket; I don't see why we should all suffer because they chose a lousy investment stategy. If I invest all my pension fund in a single share and it ges belly up, you'd call me stupid; I don't see why this is any different.

Secondly, houses aren't like shares. 'Investing' in BTL only worked as a strategy to make money if you could deprive a would-be homeowner of their dream of owning. If they could all afford to own, you'd be left with no-one to rent your property to. Any investment strategy that depends for its success on depriving others of owning a basic essential at a reasonable cost and renting it back to them at an extortionate rate deserves to fail, in my opinion.

I am sympathetic towards people who lost their pensions, up to a point. But when they wish to deprive me of a secure roof over my head to pay for their pension - and let's not forget, I'll need to pay for my own pension as well as theirs! - then my sympathy evaporates, strangely.

phil_b_2

BTL investments are still great retirement plans, regardless if CGT went to 90%... when the mortgage is all paid off the BTL'er is left with (for example) £600 a month coming in from rental, or £1200, or £1800, or £2400 (depends how many houses they bought).

Increased CGT would of course be a blow if they flogged the lot but why bother? As has been mentioned, far less people will sell and will just hold, reducing stock more?

Couldnt they just remortgage £50k's worth if they wanted to go on a luxury round the world all inclusive trip etc? The rent would cover the fee and they wouldnt pay CGT.

Thrugelmir

phil_b wrote: »

BTL investments are still great retirement plans, regardless if CGT went to 90%... when the mortgage is all paid off the BTL'er is left with (for example) £600 a month coming in from rental, or £1200, or £1800, or £2400 (depends how many houses they bought).

Increased CGT would of course be a blow if they flogged the lot but why bother? As has been mentioned, far less people will sell and will just hold, reducing stock more?

Couldnt they just remortgage £50k's worth if they wanted to go on a luxury round the world all inclusive trip etc? The rent would cover the fee and they wouldnt pay CGT.

Property purchase requires capital at the outset in order to achieve the outcome you suggest. The majority of BTL investors have no vehicle to repay the capital debt (and often have remortgaged just to fund the deposit). As the net after tax income is insufficent to repay the capital owed. A major failing in the business model.

Too many got sucked in by the 100% rise in property value between 1999 -2004. Some 6 years later capital values in many areas are relatively unchanged. Hardly a route to luxury living.

Exclude Greater London and the South East from property indices, and the market tells a totally different tale.

michaels

Very much agree with point 1 although the allowance could be shared between earned income and capital gains income so might have all been used against earned income already anyway.

I think any scheme that does not allow an indexation allowance is then a tax on inflation and I would say equal to theft.

I think if capital gains are taxable then capital loses should be allowed to be offset against income. Probably with trade able instruments an annual assessment should be made as part of the overall tax assessment to avoid issues like 'bed n breakfast' casing unnecessary hassle

I wouldn't smile too early if I had a pension pot either - there is nothing stopping the govt changing the rules on annuities, lump sums, eligible instruments etc at any time to suit themselves - see for eg Argentina's pension confiscation.

dealsearcher wrote: »

I have noticed that interviewers on the media are begining to realise the argument against a CGT rate rise. They are essentially two points:

1. CGT hits an investment of many years with a one year only tax allowance. It is unfair to compare it against an annual income of a similar amount as that has an annual allowance. The equivalent would be a cumulative annual allowance for CGT.

2. Selling property or shares is a discretionary transaction. Putting up the CGT rate would result in a reduction in transactions and quite probably a reduction in the CGT taken by the government. The politics of envy of taxing those rich so and so's may make you feel better but it won't work in reality. If it is supposed to fund a £17billion increase in the tax allowance then it won't do so.

The pragmatic approach must include taper relief and indexation for long term investments. After all it is supposed to hit the short term speculators is it not?