Tuesday, Oct 09, 2007
Could this captial gains relief invite more speculators in property
BBC: A speculator's budget?
As the captial gains has now been reduced from 40% to 18%. Could this give more leverage to property speculators. As now they have to pay less tax on these homes held as investment. Oh! my God Law of un intended consequences.
Posted by deepak @ 07:15 PM (1121 views) Add Comment
17 Comments
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1. confused76 said...
Not a problem IMHO. On the contrary, it incentivizes profit taking and exit from BTL
to pay CGT you first have to have gains. If house prices drop that will not be an issue
2. enuii said...
Exactly, as good a time as possible to get out, but when is it to be reduced from, now or April 2008?
3. wiltshire said...
Enuii, just what I was going to say. For any BTLers who have been waivering over whether to get out of the market or not this could be the tipping point as they could now get out and save themselves more than half of any CGT payable. Interesting.........
4. daft boy said...
....and of course second home owners attempting to maximise gains before the freefall starts.
5. The Baldman said...
Remember the taper relief has been abolished
6. tyrellcorporation said...
This little gem caught my eye as I run a small design business:
'There was a firestorm of outrage earlier this year when it became widely know that private-equity executives pay tax at 10 per cent or less on rewards that may run to millions of pounds in a single year. Today's capital gains tax reform will push up the tax payable by some of these.
How many multi-million private-equity earners will be affected? On my reckoning perhaps 30 or 40, in a good year.
But there will also be an 80 per cent tax increase in the tax taken from hundreds of thousands of creators of small businesses, as and when they sell their businesses.
These entrepreneurs are the real dynamos of the economy. Should they really be penalised to ensure that a few private-equity plutocrats pay more to the Exchequer? Some will see that as profoundly unjust.'
It beggars belief eh, why don’t we all just eff-off and apply for a job at the counci - join the client state, sit back and watch the pensions roll in!
JOB DONE!
7. sirgoogle said...
The news tonight on the BBC said exactly the same as the title. The budget benefits the spculators and punishes those that make the jobs.
My guess is that VI members of the cabinet with BTL have been getting worried about off loading their dodgy investment - and so have instead changed the tax laws to their own benefit.
Gosh I have a suspicious mind.
Please tell me I am wrong.
8. dohousescrashinthewoods said...
I half believe the government are trying to induce something - proposing HIPs, throwing a fiasco, swiping them to 3-beds without warning, suddenly putting up petrol prices, this, that, the other. They seem to be shooting themselves in the foot?
9. down wave said...
tyrellcorporation said... Are you a Blade runner fan?
10. Sit Tight said...
According to one of the comments on the original story, the Capital Gains Tax goes down from 40% to 18% in April 2008.
Doesn't that mean that we've now got an official government crash timetable?
If I were a positive-equity BTLer then there's no way I'd sell off before next April. For example, suppose I bought for £85,000 in 2000, now I think I can sell for £170,000 making £80,000 after costs on which I pay £32,000 tax leaving £48,000 profit. Wait until April and my profit rises to £65,600. I'm still better off even after a 12% price fall to £150,000, (£60,000 profit, £49,200 after tax). Even if prices fall 12% by Christmas, I'll still hold on unless I believe they're going to fall another 12% by April!
So for six months the tax-avoiding BTLers will prop up the whole market. But come April, (or rather March), it'll be standing room only at the estate agents as all the pressure to liquidate and realise those profits bursts on the market at the same time.
Or have I got wrong?
11. p. doff said...
Hang on a minute! If the reduction in capital gains tax is as of today, then any gains made over the last few boom years up to today will be taxed at the old level, so no incentive for BTL to offload. As the market and HPI has slowed then future gains probably won't be much. Perhaps the Gov even thinks house prices might fall therefore they get a headline to counteract Camerons vote winning statements without having to give anything away.
I'm wondering if it is the intention to fuel more speculation with the reduction from 40% when this is most needed to keep the housing ball rolling.
The Inheritance Tax thing has really P'd me off. Im in the unfortunate position of going through probate at the moment. These changes have come 5 weeks too late for me and my sister. I wouldn't mind if the Gov spent my late mothers carefully accumulated savings and proceeds from the sale of her modest house on something worthwhile but ----
12. whiteknight said...
This government understands absolutely nothing whatever about entrepreneurs.
Nothing whatever.
And this is why we are all so screwed. Because it ain't going to be the people in professions or corporates who are going to be fast enough , nimble enough or innovative enough to save this sorry ass of a country.
13. cornishman said...
Reducing the rate of capital gains tax from next April is, I think, a way of getting people to wait till next April to sell - i.e. don't bail out now and worsen any HPC.
14. voiceofreason said...
Wake up to money says that taper relief and indexation are also gone.
These could actually increase the tax take. As a lot of BTL-ers will have held for a while and will qualify for these.
They also said we need to wait for the legislation to see the detail. So I take it that the new rules don't come in immediately.
Is there a tax consultant in the house ?
Knowing this government, total tax take will go up. My gut feel is that multiple home owners in general will not benefit.
Also, the headline "40% to 18% reduction in CGT" may placate the sheeple enough to put through changes to other rules. Such as reductions in tax relief on mortgage interest for a BTL.
15. tyrellcorporation said...
DownWave... I might have watched it a few times! ;)
16. dugmug said...
Unless I'm being totally dumb here...
Under the old rules, if you held an asset for a good long period of time, indexation and taper relief reduced the amount of CGT you had to pay - in other words, there was an incentive to hold things like BTL properties for a number of years so as to pay less tax. "Flippers", on the other hand, were looking at 40% CGT.
This new CGT comes in from next April. Therefore, if you have already held a BTL property for a number of years and were expecting to pay little CGT as a result, you will now face a bigger tax bill if you wait until next April to sell. "Flippers", on the other hand, will be able to make more profits after April.
So, there is now an incentive for loads of BTLs who've owned for a while to dump their properties before April. And because they've owned for a while and so bought when prices were much lower, they won't mind knocking a few thousand off the price in order to get the sale through quick because they're still going to be quids-in. The fact that flipping properties will be more appealing, from a tax point of view, when next April arrives will be a moot point, becuase you can't flip in a falling market anyway.
This will hasten the crash - so my thanks to Darling even though this probably wasn't his intention! :-)
17. deepak said...
Dugmug, You are good. Really good. People who know me know that very rarely I get caught out.
When I read the original article I thought that these speculators will will get a benefit but you are right the real money is waiting for two years and then paying 10% profit rather than 40%. So unlike what I thought that they are getting a benefit they will actually get clobbered by an extra 8% tax. So actually you could see a glut of properties on the market in the coming months for people who are over the stipulated time to get 10%.
More supply x falling demand = Price fall.
Unfortunately speculators will win.