Emergency Budget: Capital Gains Tax to rise

uk1

Ricardoro wrote: »

Thank you Gorgeous for the link; however your sarcastic question about Google was unnecessary and frankly out of place on a Forum like this.

For your information I had already googled and also searched for "date of disposal" on the HMRC website, neither of which led to these Q's and A's.

Richard

He was being friendly and humorous and he gave you the link. Humour is useful if you visit forums.:D

Hotscot

What a mess the new CGT rules are! The Chancellor's "no small print" promise made during his Budget Speech certainly fails on this one. For long-term investors, it is a form of wealth + inflation tax. And who says the top rate will remain at 28%? The precedent has been set by the Tories, what might a future Labour government do?! Dear Elderly, be warned and afraid! Lobby for a change now!

uk1

For a Chancellor who trumpeted a straight forward and honest approach with no suprises in the detail - there was a lot of decpetion.

Firstly he wanted the voters to believe that it was payback time for the banks. But the annual decrease in corporation tax will more than offset the levy so banks are in a better position not worst. And the corporation tax decreases is structural and is a more stable and permanent reduction compared to what may be a relatively temporary bank levy. The banks will see this as a good budget not a bad one.

Secondly the Chancellor said that his CGT changes were to address those that avoided income tax. He also didn't want to penalise "those that did the right thing". He accomplished the reverse.

Take a couple who are informal property developers. The new budget gave them several bits of good news. Firstly annual CGT alloawances remain. The lack of taper relief or indeaxation doesn't bother them becasue they buy and sell properties quickly. They also have an extra £1000 of income tax allowance each. So for them they now have as a couple after they have deducted property development costs joint income tax allowances of £6750 +£1000 x 2 per year. Added to this is their annual cgt allowance. £10,100 x 2. So before they pay any tax at all on their "business" they can make approximately £35000 tax free profit. Then if they split the profits the next £37500 x 2 (ie £75000) will give them tax at only 18%. So on the first £110,000 profit ("income") they will pay roughly £14k tax per year.

A pensioner who has bought a property as a part of their pension scheme gets no indexation allowance or taper relief so that inflation is taxed. They will have the total gain added to pension income and will probably because they have a property bought some time ago be taken into the 28% tax bracket for the year they sell. So the young property developers enjoy extraordinary tax privelages and the pensioner who did the right thing is penalised.

Not what the chancelor said ...........

Mary_Hartnell

Ricardoro wrote: »

Thank you Gorgeous for the link; however your sarcastic question about Google was unnecessary and frankly out of place on a Forum like this.

For your information I had already googled and also searched for "date of disposal" on the HMRC website, neither of which led to these Q's and A's.

Richard

Don't take it personally - you are not the only one where GG has decided "not to suffer fools gladly".

Just look at the time of his posting - I reckon he had been out celebrating [STRIKE]the reduction in duty on white cyder.[/STRIKE]
CGT rates not being as high as they might have been:D

cheerfulcat

uk1 wrote: »

Take a couple who are informal property developers. The new budget gave them several bits of good news. Firstly annual CGT alloawances remain. The lack of taper relief or indeaxation doesn't bother them becasue they buy and sell properties quickly. They also have an extra £1000 of income tax allowance each. So for them they now have as a couple after they have deducted property development costs joint income tax allowances of £6750 +£1000 x 2 per year. Added to this is their annual cgt allowance. £10,100 x 2. So before they pay any tax at all on their "business" they can make approximately £35000 tax free profit. Then if they split the profits the next £37500 x 2 (ie £75000) will give them tax at only 18%. So on the first £110,000 profit ("income") they will pay roughly £14k tax per year.

I don't think that this is correct. As I understand it, any gains over the basic rate band will be taxed at 28%.

uk1

cheerfulcat wrote: »

I don't think that this is correct. As I understand it, any gains over the basic rate band will be taxed at 28%.

But they both still have their annual cgt allowances. See example in #9 above.

jamesd

uk1 wrote: »

A pensioner who has bought a property as a part of their pension scheme gets no indexation allowance or taper relief so that inflation is taxed. They will have the total gain added to pension income and will probably because they have a property bought some time ago be taken into the 28% tax bracket for the year they sell.

That's not remotely close to being accurate if you buy a property as part of your pension scheme. As with all investments in a pension scheme there is no capital gains tax to pay, though only commercial property is allowed.

If they were to buy residential property outside their pension scheme they could get letting allowance of £40,000 plus their annual CGT allowance for a total of £50,100 before any of the gain is taxable. If they lived in the property as their principal private residence there would be no CGT for that time and the three subsequent years. They would also have had the mortgage interest deducted from rental income so they don't pay tax on the interest payments, unlike a private buyer of their own home.

You want more benefits than at least £50,100 of tax free profit?

£50,100 a year tax free if you sell one property a year is quite a nice income compared to the £18,000 taxable that the average pensioner gets.

The person could also join with other landlords and arrange to exchange properties on a regular basis to get low cost sale and purchase of properties so each can realise a capital gain without paying tax. Or could set up a letting company, sell to the company and buy back from it to realise a gain, though careful consideration of tax evasion risk would be required.

jamesd

uk1 wrote: »

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

That's not remotely close to being right for most people.

1. Long term: annual S&S ISA allowance of £10,200 a year to use so they can accumulate a very substantial set of investments that won't be subject to future tax.

Short term: you're not likely to be able to easily make a huge gain on just £10,200 of invested money, though it's not impossible.

2. Long term: you get huge amounts of pension tax relief on money paid in and even the talk of a cap of £30,000 to £50,000 is still a large gain. Then you get no CGT on the investments even if they include commercial property.

Short term: you can't use a pension short term unless you're close to or over 55. The reduction in the amount you can put into a pension each year may greatly disadvantage those trying to do it quickly.

3. Long term: for residential letting property you get letting relief as well as your CGT allowance for a total of £50,100 of tax free gain. Also the ability to offset mortgage interest against rental income and the potential of principal private residence relief and flipping benefits.

Short term: you'd better be a builder or really good at getting good buy and sell prices if you want to make that sort of money on average properties and you'll still be unable to benefit much from the £40,000 of letting relief, PPR relief and the lack of tax on interest payments.

4. Long term: for property you arrange a structured sale to improve diversification, perhaps exchanging chunks of equity with another investor. This realises the gain in small chunks that can use the annual CGT allowance. Seek tax advise before doing this.

Short term: structured sales over many years aren't short term.


Long term investors still enjoy huge benefits compared to short term. They have just been reduced, not eliminated. The most inconvenienced are those who use few expensive properties instead of more diversified smaller properties or those who are so well off that the allowances won't make much difference even when fully used - the wealthy this is supposed to be targeting and who seem to have been successfully targeted.

uk1

jamesd wrote: »

That's not remotely close to being accurate if you buy a property as part of your pension scheme. As with all investments in a pension scheme there is no capital gains tax to pay, though only commercial property is allowed.

If they were to buy residential property outside their pension scheme they could get letting allowance of £40,000 plus their annual CGT allowance for a total of £50,100 before any of the gain is taxable. If they lived in the property as their principal private residence there would be no CGT for that time and the three subsequent years. They would also have had the mortgage interest deducted from rental income so they don't pay tax on the interest payments, unlike a private buyer of their own home.

You want more benefits than at least £50,100 of tax free profit?

£50,100 a year tax free if you sell one property a year is quite a nice income compared to the £18,000 taxable that the average pensioner gets.

The person could also join with other landlords and arrange to exchange properties on a regular basis to get low cost sale and purchase of properties so each can realise a capital gain without paying tax. Or could set up a letting company, sell to the company and buy back from it to realise a gain, though careful consideration of tax evasion risk would be required.

jamesd wrote: »

That's not remotely close to being right for most people.

1. Long term: annual S&S ISA allowance of £10,200 a year to use so they can accumulate a very substantial set of investments that won't be subject to future tax.

Short term: you're not likely to be able to easily make a huge gain on just £10,200 of invested money, though it's not impossible.

2. Long term: you get huge amounts of pension tax relief on money paid in and even the talk of a cap of £30,000 to £50,000 is still a large gain. Then you get no CGT on the investments even if they include commercial property.

Short term: you can't use a pension short term unless you're close to or over 55. The reduction in the amount you can put into a pension each year may greatly disadvantage those trying to do it quickly.

3. Long term: for residential letting property you get letting relief as well as your CGT allowance for a total of £50,100 of tax free gain. Also the ability to offset mortgage interest against rental income and the potential of principal private residence relief and flipping benefits.

Short term: you'd better be a builder or really good at getting good buy and sell prices if you want to make that sort of money on average properties and you'll still be unable to benefit much from the £40,000 of letting relief, PPR relief and the lack of tax on interest payments.

4. Long term: for property you arrange a structured sale to improve diversification, perhaps exchanging chunks of equity with another investor. This realises the gain in small chunks that can use the annual CGT allowance. Seek tax advise before doing this.

Short term: structured sales over many years aren't short term.


Long term investors still enjoy huge benefits compared to short term. They have just been reduced, not eliminated. The most inconvenienced are those who use few expensive properties instead of more diversified smaller properties or those who are so well off that the allowances won't make much difference even when fully used - the wealthy this is supposed to be targeting and who seem to have been successfully targeted.

Hate to remind you .... but this thread is "Emergency Budget: Capital Gains Tax to rise ".

It's a free world and you are of course free to make generalised and irrelevant comments about other elements of this budget and previous budgets - and about pensioner income generally and all the other irrelevancies in your posts you've scraped together to make some moot points - and there's nothing you've said that I'm bothered to comment or argue with further.

But if you had bothered to read the posts I highlighted a very specific set of circumstances and my remarks related to those circumstances that are within the topic of THIS thread ie changes to CGT in the budget, and are entirely accurate on the basis of the comparisons I made. I think it clear that the majority of people who purchased properties for their retirement have done so outside of sipps and any other pension wrappers and many do not rent them but use them as a second home.

Making comments about a gain because of a change in the budget that wasn't made or wasn't as bad as it might have been is also pretty obvious - but the element of the budget I highlighted clearly disdvantages people who purchased property and keep it long-term for their pension pot compared to the lack of sanction for the short-term informal property speculators. What part of conclusion is wrong exactly?

To state "That's not remotely close to being right for most people" because of other parts of the budget that hasn't been changed is just arguing for the sake of it.

Mary_Hartnell

A Rural Development Agency in the South West points out that the new CGT rules make that non-holiday rental property less attractive. So prices should fall, as second home bolt holes become no longer the investment of choice for people with a windfall gain ("You cannot go wrong with property in the long run")
This will make such properties more available to people building "holiday let" businesses and for those looking for a place to live.
[Mind you it was also pointed out that on average one job in four is a public sector job BUT in rural areas it is one in three].

I would like to point out that subsidies to land owners are denominated in Euro and are mainly the responsibility of Brussels so no cuts there; where 1 - 2 of our 17.5% VAT is recycled into farm grants.
Farming is a zero rated businesses, so gets all the VAT back in its inputs; well getting back 20% as a subsidy must be a better deal than getting back 17.5% ?