CGT. Qualifying for PPR in full --or is partly enough?

ANGLICANPAT

Im a bit unsure on the new CGT ruling , can someone clarify please?
Off UK GOV site ----
"This measure reduces from 6 April 2016 the 18% rate of CGT to 10% and the 28% rate of CGT to 20% for chargeable gains, except in relation to chargeable gains accruing on the disposal of residential property (that do not qualify for private residence relief), and carried interest. "

The statement within brackets --- can that mean the reduced rate CGT could apply to private properties which have been lived in by owners for half the time and rented out the other half (whilst the owners rent elsewhere) as such properties do qualify for SOME private residence relief? It doesnt actually say you have to qualify FULLY for PPR , does it , so is that a loophole?

And what is 'carried interest' referring to please?

Wayne_O_Mac

ANGLICANPAT wrote: »

The statement within brackets --- can that mean the reduced rate CGT could apply to private properties which have been lived in by owners for half the time and rented out the other half (whilst the owners rent elsewhere) as such properties do qualify for SOME private residence relief? It doesnt actually say you have to qualify FULLY for PPR , does it , so is that a loophole?

No. If the property qualifies for any private residence relief then it is counted as qualifying for PRR.

ANGLICANPAT

So I wonder if the taxman is making a concession then to the people who own only one property and live in it , but after a few years need to move to rent elsewhere for various non work reasons , and let out their owned property but until now have found themselves still left with a cgt bill when they sell ,despite PPR and other allowances? 10% on whats left is much more palatable than 18%. Can hardly believe it - not often new tax rules are of benefit to anyone in my family!

Would seem much fairer to me though as people have all sorts of genuine reasons to temporarily leave their property ,such as moving to be near a new prospective partner for a while, not being able to sell but increasing their family, needing to move nearer to relatives to get help with childcare etc .They have to pay their new rent with taxed money , and still have to pay income tax on the incoming rent.

CLAPTON

ANGLICANPAT wrote: »

So I wonder if the taxman is making a concession then to the people who own only one property and live in it , but after a few years need to move to rent elsewhere for various non work reasons , and let out their owned property but until now have found themselves still left with a cgt bill when they sell ,despite PPR and other allowances? 10% on whats left is much more palatable than 18%. Can hardly believe it - not often new tax rules are of benefit to anyone in my family!

Would seem much fairer to me though as people have all sorts of genuine reasons to temporarily leave their property ,such as moving to be near a new prospective partner for a while, not being able to sell but increasing their family, needing to move nearer to relatives to get help with childcare etc .They have to pay their new rent with taxed money , and still have to pay income tax on the incoming rent.

will you actually need to pay any tax?
all people renting have to pay their rent from taxed income : why should it be different for you ?

bowlhead99

ANGLICANPAT wrote: »

Im a bit unsure on the new CGT ruling , can someone clarify please?
Off UK GOV site ----
"This measure reduces from 6 April 2016 the 18% rate of CGT to 10% and the 28% rate of CGT to 20% for chargeable gains, except in relation to chargeable gains accruing on the disposal of residential property (that do not qualify for private residence relief), and carried interest. "

Basically this is supposed to mean that the rate of CGT is going down from 18/28 to 10/20 for gains other than gains on residential property and carried interest.

The statement within brackets --- can that mean the reduced rate CGT could apply to private properties which have been lived in by owners for half the time and rented out the other half (whilst the owners rent elsewhere) as such properties do qualify for SOME private residence relief? It doesnt actually say you have to qualify FULLY for PPR , does it , so is that a loophole?

No, you are barking up the wrong tree.

The gov.uk site is trying to put tax law into user-friendly language to save you visiting the primary legislation. What has probably happened is that when they drafted the wording for the website and said the tax rates are being dropped for all gains except gains on residential property, the gains on property are still being charged at 28%... some bright spark said 'hold on, a lot of people - the majority even - don't even pay tax on gains when they sell property, because they get up to 100% principal private residence relief. So shouldn't we put something in there that says you only have to worry about 18% or 28% tax on property gains that haven't been eliminated with PPR relief?"

So, the editor of the webpage said "Fine, ok, whatever dude, we want it to be clear that we're not trying to introduce a new tax charge for people who used to get PPR, but just talking about the people who actually have some tax to pay on their residential property gains. Lets say something along the lines of, the rates are dropping to 10/20% except for gains on property that don't qualify to be ignored through PPR. Then it'll be obvious that we are not trying to bring in new taxes on property; basically all the old rates and reliefs apply, we're just trying to make sure people know the tax rate isn't dropping to 10/20% for property deals". And they came up with the wording that you see there.

And what is 'carried interest' referring to please?

If you are an investment fund manager operating an investment fund - say, structured as a partnership - and you're buying into the partnership alongside the other investors, you can agree with them that you'll take a special extra interest in the partnership whereby you get an extra share of the returns, over and above that implied by what you invested, subject to the other investors hitting some performance hurdle.

Effectively you might put £100m into the pot alongside £900m of investor's capital and when you deliver them a 2x return on cash, they are very pleased with you and let you take 20% of the proceeds even though you only contributed 10% of the capital.

This special extra return earned by the manager or sponsor of the investment fund (say a venture capital, private equity, infrastructure or real estate fund) or the designer of a particular project, is known as a 'carried interest' in the deal, because the other investors have carried the manager along and funded his share of the up front costs, to buy him an enhanced share of the returns, while he only paid a bit of the costs, and provided the lion's share of the expertise.

There has been lots of publicity about reforming the tax treatment of carried interest because the amount of money that some fund managers make through that type of 'performance fee' can be pretty large and if it is a bonus for them hitting a target, an argument could be made that it is just like a banker earning a big bump in salary by doing a good job, and should be taxed as income rather than gains.

The people structuring those sort of funds say 'nonsense, this is entirely a risk capital transaction in which I am putting money in myself and might lose it all and get no bonus unless I hit these pretty aggressive targets'. However, it is controversial enough for HMRC to say OK let's call it capital gains then BUT you're not having the sweet low rate of 10%/20% on it, you can have the old 18/28% just like those residential property flippers.

So I wonder if the taxman is making a concession then to the people who own only one property and live in it , but after a few years need to move to rent elsewhere for various non work reasons , and let out their owned property but until now have found themselves still left with a cgt bill when they sell ,despite PPR and other allowances?

No such concession. It's just you reading into it, what you would like to be true. However, just because you don't want to pay tax on the asset that you had that grew in value when you weren't using it as a home, doesn't mean the taxman or the rest of the country's taxpayers would like you to be able to make profits on an asset you don't live in. The rest of us have to pay taxes on profits on our assets that get sold for more than we paid for them, unless they are our homes or fit inside the annual exemption.

Would seem much fairer to me though as people have all sorts of genuine reasons to temporarily leave their property ,such as moving to be near a new prospective partner for a while,

Hmm... I'd like to let my house out for fat profits but don't like the taxation regime applied to landlords, so I'll dodge it by buying a residential house, then move out of it to be near a potential partner for a bit, while renting it out just like a business asset, and then sell it for more than I paid for it just like a business asset, but claim a month of principal private residence relief for it because that's how long it took me to put some new carpets in before I 'genuinely' moved out to be nearer my new 'prospective' girlfriend. And then because I qualified for a bit of PPR I should be entitled to have a much lower gains rate than a landlord making the exact same financial return but not taking any PPR...

Do you think that is a realistic new bit of policy planning brought in by government having assessed the risk of abuse? Of course not.

They have to pay their new rent with taxed money

I don't know anyone lucky enough to pay rent with untaxed money

, and still have to pay income tax on the incoming rent.

We all pay taxes on our income and on our gains. If you don't want rental income because of the taxes on it, then get rid of it: sell the asset that generates the income, for whatever the market will pay. If you don't want to pay taxes on the gains, don't sell it for so much.

ANGLICANPAT

Property isnt actually mine, its a daughters. I guess Iwasnt really considering people renting out their own property purely to rent cheaper elsewhere and make a profit ,as her reasons were far from that . I can see your point though when it comes to profiteers.

Your explanation of how the wording came about , sounds very plausible . Thanks for taking the trouble to explain carried interest . As I havent got a few millions to spare , I dont think its something I need worry about !