<body><script type="text/javascript"> function setAttributeOnload(object, attribute, val) { if(window.addEventListener) { window.addEventListener("load", function(){ object[attribute] = val; }, false); } else { window.attachEvent('onload', function(){ object[attribute] = val; }); } } </script> <iframe src="http://www.blogger.com/navbar.g?targetBlogID=35268800&amp;blogName=LettingFocus&amp;publishMode=PUBLISH_MODE_FTP&amp;navbarType=BLUE&amp;layoutType=CLASSIC&amp;searchRoot=http%3A%2F%2Fblogsearch.google.com%2F&amp;blogLocale=en_GB&amp;homepageUrl=http%3A%2F%2Fwww.lettingfocus.com%2F" marginwidth="0" marginheight="0" scrolling="no" frameborder="0" height="30px" width="100%" id="navbar-iframe" allowtransparency="true" title="Blogger Navigation and Search"></iframe> <div></div>


Unbiased buy to let, property investment and letting coaching, mentoring, advice and seminars for landlords from top selling property author and media commentator.

« Home | Next » | Next » | Next » | Next » | Next » | Next » | Next » | Next » | Next » | Next »

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.

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.

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 OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to [email protected] - Please note we WILL NOT send spam or sell our mailing list to advertisers!


Have you seen this useful article on lease extensions and buying freeholds.... http://www.lettingfocus.com/pages/myarticles_leaseextensions.html

Simply copy the site feed link into your News Reader or News Aggregator.
If you have a website & are thinking of reproducing material here, that’s fine but we DO require a link to the blog to be included, including also all the links in this section. (The full article including all links must be available to ALL VIEWERS of your site and not restricted.)
TO VIEW RELATED POSTS select a “Category” at the bottom of this page.

To add a comment to this post, simply click on “link to this post” to add your comment and to view comments of other people.
Copyright: David Lawrenson 2007. This blog is updated at least once a week

Labels: , , , , , ,