Emergency Budget: Capital Gains Tax to rise

uk1

Stavros wrote: »

Don't forget you have £10,100 each year that is exempt, so a modest portfolio held for 5+ yrs will have a lot of protected profits

Of course. I haven't forgot. The allowance is an annual allowance. But people that have bought a second home as a long term investment for their retirement they will now pay a chunk of their savings into tax at 28%. Inflation ignored. Length of investment ignored.

ukjoel

John_Pierpoint wrote: »

Exchange of contracts.

Also search this part of the forum for "letting allowance" and "last three years" for additional relief against CGT.

I am in a similar situation to the chap that asked the question.
For me (and I guess many others) the rate of CGT wasnt going to have as much impact as any change in the allowances and exemptions.

From what I can see the bad news is that the CGT has gone up to 28% but the good news is that as the exemptions of letting allowance, and last 3 years, combined with time as main residence and annual CGT allowance means that by the skin of my teeth I avoided the tax at 18% so also avoid it at 28%.

I think all the other accidental landlords are breathing a sigh of relief at the moment.

uk1

ukjoel wrote: »

I am in a similar situation to the chap that asked the question.
For me (and I guess many others) the rate of CGT wasnt going to have as much impact as any change in the allowances and exemptions.

From what I can see the bad news is that the CGT has gone up to 28% but the good news is that as the exemptions of letting allowance, and last 3 years, combined with time as main residence and annual CGT allowance means that by the skin of my teeth I avoided the tax at 18% so also avoid it at 28%.

I think all the other accidental landlords are breathing a sigh of relief at the moment.

Correct. It's great news for short term speculators and bad news for long-term investors.

JamesU

uk1 wrote: »

Correct. It's great news for short term speculators and bad news for long-term investors.

Thanks for this info, you got there before me on the website...

Yes you are absolutely correct with this comment.

Those that have long term property investment for retirement (and holding this for well over 10 years) are being hit hard. Each individual circumstance is obviously different (actual value increase, offset costs, salary/retirement income etc). But to put this into perspective, in the maths I have run:

With indexation/taper relief/40% CGT/allowances, CGT=20% of profit

When switched to 18% flat rate/allowances, CGT=16% of profit

Budget June 2010, CGT=25% of profit.


In effect if you have planned reasonably for the long term and have also made prudent provision for a retirement income, you loose out. And the longer you have prepared and invested for this the worse the CGT penalty as the profits are not indexed.

If you have invested shorter term and made less provision for retirement income you are better off on the CGT.


JamesU

uk1

JamesU wrote: »

If you have invested shorter term and made less provision for retirement income you are better off on the CGT.


JamesU

Osborne said he wanted to kill a loophole of people converting income to capital gain in order to avoid tax. A husband and wife team turning over a property or two a year enjoys both annual income tax allowances and cgt allowances. They also pay tax at the lowest rate ie 18%. They make a killing. Long term investors lose inflation because as you say no indexation or taper and pay 28% on a chunk of their long-term gain.

He has managed to accomplish the reverse of what I thought he wanted to do.

JamesU

uk1 wrote: »

Osborne said he wanted to kill a loophole of people converting income to capital gain in order to avoid tax. A husband and wife team turning over a property or two a year enjoys both annual income tax allowances and cgt allowances. They also pay tax at the lowest rate ie 18%. They make a killing. Long term investors lose inflation because as you say no indexation or taper and pay 28% on a chunk of their long-term gain.

He has managed to accomplish the reverse of what I thought he wanted to do.

Yep, it defeats the objective, I was quite relaxed thinking any substantial rise in CGT would have a form of indexation/taper reintroduced. I have never really understood trying to link income tax allowances with CGT given the latter involves risk whereas the former does not. Now we end up with this.....great stuff.

JamesU

uk1

I was becoming increasingly edgy because there was a failure to reassure long term savers. Now I know why.

There may be an issue with back benchers. As it happens I'm friendly with my MP who is now front bench and sitting there today (no clues but two away .....) - and I've sent him a note. Also to John Redwood who has been active on this topic.

JamesU

uk1 wrote: »

I was becoming increasingly edgy because there was a failure to reassure long term savers. Now I know why.

There may be an issue with back benchers. As it happens I'm friendly with my MP who is now front bench and sitting there today (no clues but two away .....) - and I've sent him a note. Also to John Redwood who has been active on this topic.

Have a lot of time for John Redwood, balanced chap.

Bets on how many people owning property, especially if held jointly with a single salaried income coming in (where x2 CGT allowances, x2 hybrid income tax/CGT threshold allowances) will stop working and sell up one financial year before retirement? No point in working for a year if you just give it back in tax is there? Better take a post-retirement cruise instead.

JamesU

Gorgeous_George

Only the Tories could tax inflation as if it was gain.

Fortunately, I don't have any gains to tax unless I sell my BTL and I have no plans to do so in the next 5 years. After that we'll have a different government and the rules will probably change again.

GG

JamesU

Gorgeous_George wrote: »

Only the Tories could tax inflation as if it was gain. GG

As indexing/taper relief was removed with the inroduction of 18% CGT, presumably Labour were doing it too?

JamesU