CGT Changes and Furnished Holiday Lets by Letting Focus

There is still a considerable clamour on the chancellor to amend his plans on changes to simplify capital gains tax to make it more palatable to businesses.
We will have to wait and see – but I don’t think much will change – as there will be too much political face to be lost if Darling changes things now.

Furnished Holiday Lets
One class of investors who lose out is people with furnished holiday lets. Unlike buy to let investors, who generally gain under the proposed move to an 18% flat capital gains tax rate, owners of furnished holiday homes will lose out.
This is because they are treated just like any other business and currently get a different more generous type of taper relief called Business Asset Taper Relief (as opposed to the “Non Business” version that applies to buy to lets).
With this only 25% of the gain was taxable after owning for 2 years or more – giving a higher rate taxpayer a rate of effectively just 10% to pay.
With the new flat of 18% rate, they will pay more from April 5th 2008.
Then again, there could be a compensating factor at work here too. As a result of the lower CGT rates on second homes, more people will buy second homes for themselves. This could increase the value of houses in rural and coastal areas - just those places where where there are many holiday lets.

ABOUT DAVID LAWRENSON and LettingFocus
We are LettingFocus.com - the property letting experts and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased buy to let information for investors at our seminars as well as one to one (or two) focussed consulting advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated buy to let and property “advice” business we are not linked to a property company, developer, estate agency or bridging loan provider and so can be relied on for unbiased and independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

CHECK OUT THESE PAGES AT OUR SITE LETTINGFOCUS.COM:
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For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
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For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
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Capital gains tax changes who wins and who loses by Letting Focus

At a recent speaking engagement to a professional group of property investors I was asked who wins and who loses from Capital Gains tax Changes?
Well, let’s see.
Currently CGT for most investors is levied at 100% of any net gain they make after deducting buying and selling costs after deducting their £9,200 allowance if they sell within 3 years.
The charged rate is then 40% if they are higher rate taxpayers and 20% if basic rate taxpayers. However, something called Non Business Asset Taper Relief then came into play which means that after the first three years of owning a buy to let you get to effectively knock off 5% of any net gain.

Taper Relief
This then “tapers down” by further lumps of 5% each year, up to the 10th year of ownership so that by year 10, a maximum 40% taper is applied.
So, when you get to the maximum taper relief available of 40%, this means you would only be taxed at 60% of the capital gain.
If you are a higher rate taxpayer and pay 40% capital gains tax rate, the “effective” rate of tax you would pay on the gain after 10 years would be 60% X 40% = 24%.
If you are lower rate taxpayer you pay 60% x 20% = 12%
(To complicate matters, you should note also, that if you owned the property before 1998, for any period up to march 1998, you benefit from another sliding scale called “indexation allowance” which reduces the taxable gain by the rate of inflation up to 1998 but let’s not go there!)
That's the hard bit. Now to the easy bit!

New Regime for CGT
With Darling’s changes, (which take effect for asset sales after 5th April 2008) both these sliding scale CGT rates are to be abolished and replaced with a single CGT rate of 18% no matter how long you owned the property.
So, if you are an investor and pay tax at the higher rate of 40%, you are a clear winner as 18% is always less than the best rate you could have got under the old regime (i.e. where the property was held for 10 years or more) of 24%.
The biggest gainers of all are higher rate taxpayers who have held property for less than 3 years whose “effective” CGT rate will drop from 40% to 18%.
Even if you are a basic rate taxpayer, any significant gains you make could push you into the top rate of tax, thus meaning that the new regime may be better for you too.
If, however, you are a lower rate taxpayer and your gains would not push you into the 40% tax bracket, then you would be worse off under the new system only if you have held the property for more than 4 years. If you are one of these and you are thinking of selling, then do so now as you will pay more after April.

Second Home Owners
Second home owners – most of whom are higher rate taxpayers - are also big winners of course - and this change could make prices of properties in coastal and rural areas, particularly go up further.
Since most UK buy to let investors and second home owners are higher rate taxpayers, there will be a lot of people waiting until April before they complete on second property sales.
Of course, in general this change will make buy to let and second home owning more attractive still - and attract entrants into the market, thus possibly buoying up the housing market at a time when it looks shaky.
Judging by the amount of enquiries I now get from banks and building societies interested in my consulting services to help them improve their buy to let mortgage products, I think the buy to let arena is surely set to grow -and this fillip to tax will only help matters.

Furnished Holiday Lets
Finally, a footnote, the tax changes are not so good, however, for owners of furnished holiday lets. They will be worse off and I will look at this in the next blog.
Finally, tax is complicated, so if you are considering what to do, take advice from a financial adviser familiar with residential property taxes.

ABOUT LETTINGFOCUS.COM
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated and shark infested buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give honest, unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

CHECK OUT THESE PAGES AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
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Landlords Given a Huge Tax Windfall says Letting Focus

It’s hard to believe this but thousands of property investors were among the winners from yesterday's pre-Budget report, after the Government unveiled plans to slash the rate of capital gains tax from 40 to 18 per cent.
Currently, higher rate taxpayers are taxed at 40 per cent on any gains above £9,200 in any one tax year – although using taper relief, this rate can be reduced to as little as 24 per cent on assets held for 10 years or more (or 12% for lower rate taxpayers) .
CGT hits residential buy-to-let landlords who sell their properties, as well as wealthier individuals who realise capital gains when selling any type of share investment.
But from 6 April next year, all capital gains above the personal allowance of £9,200 will be charged at a flat rate of 18 per cent – while taper relief (and the old indexation relief for pre 1998 purchases) will be scrapped.
And this applies retrospectively, so if you are a higher rate taxpayer (and for those lower rate taxpayers who bought less than 4 years ago), the best thing to do if you are thinking of selling now is – don’t. You are best selling next year after April 6 when you will pay less a lot less CGT.
Many individuals will no longer need to hold on to their assets for many years to minimise their tax.
I can hear a gnashing of teeth from some of my good friends who think landlords should be taxed harder (including the Institute of Directors and the Guardian newspaper) who say that landlords should be taxed more not less – including having their ability to set off interest on loans for buy to let property as a cost - removed.

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!

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Flat Conversion Allowance - How to Make Money from The Space Above a Shop - and Get the Taxman to help out too.

Here is some useful property tax advice.
Did you know that under the Flat Conversion Allowance scheme you can get income tax relief on the cost of converting or renovating the empty space above a shop, café, office or surgery and turning it back into use as residential flats?
However, as always with such a nice tax break, there are some rules.
In order to qualify for the allowance, the money spent has to be on things of a “capital nature” so whilst you can claim for the cost of dividing the property to create separate flats or installing a new kitchen or bathroom, you won’t be able to claim the cost of providing furnishings.
There are also rules about the type of building that qualifies.
The property that is being converted must be in a shopping street, have no more than 4 storeys and the building must have been built before 1980 with the original intention that the upper floors be used as residential accommodation.
The space above the shop or office must have been either empty or used only for storage, for at least the last year.
When the conversion is complete you must let the flats out to tenants and the ground floor must continue to be used for business purposes both during and after the conversion.
Finally, each new flat has to be self-contained and access to the street from the flats has to be separate from the ground-floor premises.

More Rules
The rules say that expenditure does not qualify for he allowance if any flats created are "high value" flats, which the Revenue defines as flats which, “when the conversion or renovation work starts would be expected to achieve rents above set limits.” This is approximately £350 per week in London and £150 outside London.
You have to own the property and let it out for seven years after conversion because the allowance can be withdrawn if you sell the flats or the flats stop being used for letting during this period.
Making a claim is easy though.
You simply claim for the flat conversion allowance in the tax return for the year in which the conversion or renovation money is spent - and there are no special requirements beyond the usual self assessment.
The allowance is 100 per cent in the year in which the expenditure happens or if you prefer, you can claim a lower amount, with the balance of the cost spread over later years.
It’s possible to set the allowance against other income from property and if you don’t have enough property income in that year, the excess capital allowance can be carried forward and set off against future property profits.
Alternatively, excess capital allowances may be set against the person's other income for the year, or the following year.

ABOUT US

At LettingFocus.com is the home of landlord information.
Hello, I’m David Lawrenson.
I have been a landlord and property investor myself for over 25 years and am author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.

We help landlords and property investors make money in property by coaching them in ways that work, which are ethical and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased buy to let advice on a one to one mentoring and coaching basis as well as through occasional group seminars.
Unfortunately, in the UK today, property advice in the UK is still largely unregulated and what counts as “good advice” is too often more about making the promoter money than giving useful information to the investor.
With no links to property firms, developers or bridging loan providers we can advise on where and what type of property to buy for investment and when to buy it.
We also show you how to manage tenants properly.
We also do consultancy for banks, local authorities and social housing providers – helping them with their landlord facing or buy to let product strategies. We also write for property websites and are regularly quoted by the media.

AT OUR WEBSITE LETTINGFOCUS.COM:

THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
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NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
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For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
TO READ CLIENT TESTIMONIALS – both commercial and private click here: Testimonials
BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else you fancy at Amazon.co.uk

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Copyright of Blog: David Lawrenson 2007. This blog is updated roughly once a week usually on a Monday or Tuesday.

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