Emergency Budget: Capital Gains Tax to rise

00ec25

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.

whilst some people will of course slip under the net, your short term property developers in the scenario you paint are not subject to CGT at all
HMRC guidance clearly states there where property is purchased with the intention of realising a profit in the short term then the entire transaction will be subject to Income Tax only.
Remember HMRC are informed of every property purchase and it will not take their computer long to spot property development activity.

Mary_Hartnell

So we are now employing armies of Civil Servants to try to check where Ms M A Smith used to live before she moved to Linden Crescent.
Then she gets hitched to Mr J Jones and moves with him to a bigger house in Acacia Avenue and puts herself on the deeds as A Jones.
Then they sell and rent for a bit while negotiating as cash buyers with the executors of the derelict bungalow of the Late Mr Crumbly............

Either we have been taken over by the Stazi or they have to be shopped by the neighbours? [or both].

Mikeyorks

Mary_Hartnell wrote: »

So we are now employing armies of Civil Servants to try to check where Ms M A Smith used to live before she moved to Linden Crescent.

Nope. It's called Stamp Duty / Land Tax. Creates an interrogatable database of property transactions.

jamesd

uk1, before replying I carefully read all of your recent posts, on this topic and others.

Maybe you're more interested in trying to start a campaign but I'm interested in explaining to people how to avoid or reduce the effect of the budget change. That includes correcting your claim that it would affect pension schemes, which won't be affected by the CGT change in the budget.

The CGT change has no effect at all on most long term investors because of the pension and ISA allowances, as I've explained. They aren't irrelevant, they are a key part of how people can reduce the effect of the CGT rate rise in the budget.

00ec25 has subsequently also correctly explained that for short term property developers, their profits are taxable income, not capital gains, so they are unaffected by this change and already pay income tax at their highest marginal rate on their profits, if they don't do it as a company.

For people who buy rental residential property outside a pension I suggested some other ways to deal with capital gains tax when the £50,100 tax free gain isn't sufficient. It won't prevent me from using BTL when the time is right but I can understand how it can hurt if you already have say a few expensive properties with big gains instead of cheaper ones with smaller gains, or if you don't want the added complexity of structured sale arrangements or shared ownership deals with other investors.

If you do have the fewer expensive properties situation, you have my sympathy. Good luck with your CGT avoidance planning.

jamesd

Mary_Hartnell wrote: »

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.

Maybe some effect but those who may be most affected are those with few high value properties and those are already unaffordable for many of the locals most affected by the second home issues.

For the cheaper properties, the £40,000 private letting relief, £10,100 CGT allowance, Principal Private Residence relief for three years and ability to deduct mortgage interest from income still combine to make using residential property as an investment very attractive.

See this example: "In other words, Roger has made a tax-free capital gain of £70,000 just by having lived in a property for two years!"

John_Pierpoint

You don't get the 40K unless the property has at some stage been your Principal Private Residence?!!!!

Not everyone is as astute at "flipping" their PPR as MP's

http://www.property-tax-portal.co.uk/taxquestion49.shtml

uk1

jamesd wrote: »

uk1, before replying I carefully read all of your recent posts, on this topic and others.

Maybe you're more interested in trying to start a campaign but I'm interested in explaining to people how to avoid or reduce the effect of the budget change.

jamesd wrote: »

For the cheaper properties, the £40,000 private letting relief, £10,100 CGT allowance, Principal Private Residence relief for three years and ability to deduct mortgage interest from income still combine to make using residential property as an investment very attractive.

Instead of making wild assumptions and presumptions - and being rude - perhaps you should at least spend as much time getting your facts clearl! You didn't explain that the second home had to have been the main home..

jamesd

John_Pierpoint, yes as the link we gave explains, it must at some point have been your principal private residence if you want the private letting relief. The holiday home, accidental landlord, new couples and serial mover/flipper groups should be fine but it'll be of less value to those who have properties they are unwilling to live in for a while.

uk1, I'd really hope that someone could look up private letting relief if they were considering setting up a letting business but you may have noticed the link I gave in my later post. The potential for up to £40,000 in gain to be excluded from tax (£11,200 in tax saved at 28%) seems like a pretty good incentive to live in a place for a while. I'm not sure how much sympathy we should have for someone who doesn't care about the relief enough to do that, though I'm sure that there will be some with particularly difficult circumstances who can't do it for some reason.

John_Pierpoint

Do you remember those property !!!!!! programmes.

Mr & Mrs amateur speculator/developer after thrills and spills ended up with a renovated house - but probably showed little more "profit" than they would have done living in the unimproved property as against living on a building site for a year.

They would then say "we have decided to rent it out for a bit" hoping to make some more capital gain and still be able to claim the letting relief.:D

Happy foolish days.

uk1

jamesd wrote: »

The potential for up to £40,000 in gain to be excluded from tax (£11,200 in tax saved at 28%) seems like a pretty good incentive to live in a place for a while. I'm not sure how much sympathy we should have for someone who doesn't care about the relief enough to do that, though I'm sure that there will be some with particularly difficult circumstances who can't do it for some reason.

Well you still seem to be immune to the suggestion that rudeness, genralisations and trying to shoehorn your views into a completely different topic in order to grandstand yourself hasn't been helpful. I presume you don't know me and therefore your assumptions about my motives illustrate well the lengths that some will go to to try and win an argument that they have created.

So far as your above specifics.

Your notes become more confused and irrational. I'm not sure about the relevance of offering or not offering sympathy for people who do not comply with your apparently serious suggestion that they move homes in order to maximise cgt and gain £11,200. I'm not certain what planet you are on, or what you are taking, but the suggestion that it this is a relaitvely trivial matter and to most represents the prudent thing to do is plain barmy. Not explaining it more fully when you made the suggestion in your earlier post simply illustrates that a little knowledge is often a dangerous thing.

Anyway - please find someone else to pick on now as the exchange isn't going to go anywhere useful for the others who are content to discuss - as the thread title suggests - the new cgt rates.