Wednesday, May 12, 2010
Could... this... be... the... HPC... trigger...?!
City Wire: Capital Gains Tax rise: should you act now?
Capital Gains Tax is definitely going to rise under the new coalition, possibly to come into line with income tax rates of up to 50%. So investors must start thinking about realising assets to take advantage of the current flat rate of 18%. [...] So what should investors be doing? If you were thinking of realising assets like a buy-to-let property – which will take some time to sell – now is the time to go ahead.
Posted by mick rupert @ 12:37 PM (2157 views) Add Comment
12 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. mick rupert said...
Just in case it's insisting on a sign-up before viewing, and to facilitate easy discussion... :-)
Capital Gains Tax is definitely going to rise under the new coalition, possibly to come into line with income tax rates of up to 50%. So investors must start thinking about realising assets to take advantage of the current flat rate of 18%.
There will be ‘generous exemptions’ for entrepreneurs as under the old regime reformed by Alistair Darling in 2008. Before 2008 CGT was charged at the taxpayer’s marginal rate of income tax – which most agree makes sense – and businesses were given tax concessions which meant they paid only 10% CGT on profits of up to £1 million. The CGT increase was widely expected – whoever won the election – and will be used to fund a significant increase in personal tax allowances to be implemented in April 2011 – although not necessarily an immediate full increase to £10,000 proposed by the Lib Dems in their manifesto.
So what should investors be doing? If you were thinking of realising assets like a buy-to-let property – which will take some time to sell – now is the time to go ahead. Spring is the ideal time to put property on the market and with interest rates at an all-time low and lending criteria easing (buy to let mortgages at up to 80% loan to value are now coming back) there should be healthy demand for properties as a result of considerable pent up demand and a shortage of properties for sale.
For sellers it will be a case of ‘first up best dressed’ with early sellers probably getting the best prices as there is bound to be a substantial increase in properties coming to the market. Ray Boulger of mortgage broker John Charcol points out that in the owner-occupier market sellers and buyers are likely to even things out. ‘But higher CGT will certainly impact on buy-to-let as the possibility of higher rates of tax could deter investors.’
He points out that many buy-to-let investors are relying on capital gains to make buy-to-let worthwhile as they are currently generating no income from their investments after they have paid interest charges. They will make even less, or be forced into subsidising interest charges out of other income, once interest rates start to rise. If capital gains are subsequently taxed at up to 50%, this would act as a powerful disincentive to invest. ‘Second homes are a more difficult call as many owners will want to keep their holiday home. But it could precipitate sales amongst those coming up to retirement who were going to downsize anyway,’ he says.
Buyers, in particular first time buyers, might do better to wait until the increase in property for sale brings prices down – or at the very least stabilises rising prices which is what most mortgage lenders and the Royal Institution of Chartered Surveyors were predicting before any CGT increases.
The market was already moving anyway with the National Association of Estate Agents reporting the biggest jump in sellers since August last year, while there was also an increase in the number of potential buyers. The NAEA said estate agents had an average of 62 properties on its books during April, up from 60 in March and the third consecutive monthly increase. There was also a small increase in buyers, rising to 278 per branch from 274 in March. At the moment it is still a sellers' market – but that could change rapidly with the prospect of CGT at 40% or more.
Selling more liquid assets like bonds, shares and mutual funds, which can be executed instantly, can wait until the most opportune moment – which may in fact be sooner rather than later. The stock market clearly liked the news of the coalition and was up a few points in early trading but was broadly neutral.
Share prices are more likely to be impacted by the turmoil in Europe or a worldwide sovereign debt crisis, so now could be a good time to take some profits and perhaps stay out of the market until it becomes clearer whether the EU rescue for Greece, and the other Club Med economies which are under pressure, is working and we can see where share prices are going. Don’t forget the old adage, ‘sell in May and go away.’ Emerging markets – the BRIC countries – might remain immune to what is happening in Europe. But don’t bank on it.
It could, in any case, be a mistake to sell shares and bonds in a hurry, before we see the detail of changes in CGT for non-business assets. The new government could go for a root and branch reform, taxing short term gains at income tax rates but giving relief for purely inflationary gains to long term holders of assets. This would be welcomed by investors – but would create problems for accountants and stockbrokers if it involved a return to indexation which is a nightmare to implement. A possible compromise might be to retain the flat rate of 18% (which is in line with CGT rates in much of the EU) for gains on assets held for, say, five years or more.
2. stillthinking said...
Good point. Something to think about. I think probably that faced with 50% CGT tapering on the amount of time held, most people will hold and not sell. Bit like closing the door on easy money for the BTL crew though.
3. 51ck-6-51x said...
More likely to dampen new demand than increase new supply IMO - there's only 50 days to get the deal done, and even then it's conceivable they'd backdate to today anyway.
4. 51ck-6-51x said...
Ooh err missus...
5. growler said...
I still stick by the fact that 1st properties need also to be taxed - albeit with greater allowances. I know there are LVT ideas, but the "average man in the street" will understand CGT less allowances. Now is the time
6. mken said...
realising assets or crystalising losses
7. mountain goat said...
"Private investors are expected to start selling shares and second homes in the coming days, in an attempt to take their profits before capital gains tax is increased in the UK coalition government’s first Budget."
http://www.ft.com/cms/s/0/acfee9d4-5db6-11df-b4fc-00144feab49a,dwp_uuid=24f60f14-10b2-11df-975e-00144feab49a.html
Sounds good to me.
8. mark wadsworth said...
Growler, if you think that CGT on first homes is do-able politically (like in the USA, they could exempt the first £x00,000 of the proceeds) then go for it my friend. This'll be yet another tax that I can promise to roll into land value tax.
9. doomwatch said...
I don't have a problem with this. It will act as a barrier to market. However, they need to bring back the sliding scale taper relief, as this will encourage long term investment, instead of short term speculation.
10. doomwatch said...
Coupled with rising interest rates at the back of this year, this looks like the perfect sh1t storm for those
long property.
11. fjcruiser said...
I am in favor of reducing income tax for all.People should be encouraged to earn more money without the threat of having to pay 50% out in taxes.It would help sustain the economy as money is recycled quickly. To offset the decrease in tax collection,IHT tax should start at a lower threshold and be incremental. IHT is an innefficient tax as most of it is not paid because of the tax loopholes which benefit the rich.It also create huge inequalities between rich and poor which ultimately could create social unrest.
In agricultural societies where land was the main asset, it made sense that it went to the eldest son rather than being divided amongst the family. In todays societies, inheritance is mainly composed of properties and shares and cash (mostly dead money) and it does not make any sense that these assets are not taxed because of death while they are taxed when the person is living.
12. quiet guy said...
Assetz have released a brief comment on the proposed CGT changes: Possible CGT hike from coalition government If Law thinks it's negative for property then it's pretty bad. I notice that in Law's view, keeping CGT at 18% is good for investors but raising CGT to 50% is bad for the economy.