Tuesday, Jun 22, 2010
Budget 2010: CGT shock for basic rate taxpayers
Telegraph: Budget 2010: CGT shock for basic rate taxpayers
Contrary to the impression given by the Chancellor, many owners of second homes and buy to let landlords who pay basic rate income tax will be caught by the new higher rate of 28 per cent capital gains tax (CGT).
Posted by becky @ 10:20 PM (2218 views) Add Comment
25 Comments
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1. chrisch said...
The telegraph is gradually becoming even more nutjob than before. Slowly it is replacing the Mail as the voice of indignant outrage at having to face up to personal responsibility as our entitlement culture middle classes realise they are not rich.
2. mystie010 said...
Tee hee! This article has just cheered me up! Is this actually correct I wonder?
3. mark wadsworth said...
The hypocrisy is absolutely staggering.
Had you bought an flat to let out fifteen years ago for £50,000 and known that CGT was up to 40%, you would have been pretty chuffed had you known that the flat could be sold for £100,000 fifteen years later. You'd think great, that's a £50,000 profit, £20,000 tax bill, net profit of £30,000 = 60% on my original investment (which was probably highly geared).
Had you known that the flat could be sold for £150,000 fifteen years later and known that CGT was up to 40%, you would have been even more delighted, your net profit is £60,000 after tax, a 116% return on investment.
But simply because CGT was briefly down to 18% and is now up to 28% (albeit without indexation, which sort of makes it equal to the old 40% rate with indexation) all of a sudden, does that investment of 15 years ago become a bad investment? Nope, it was a bl00dy fantastic investment.
And as somebody once said, the poor b*gger who buys it off you has to pay for it out of income that's been subject to income tax and NIC of about forty per cent, so where's the injustice?
4. paul said...
What crisch says.
The howls of indignation from the boomers at the thought of having to give back all their hard earned profit from sitting back on their arses watching their properties go up in value because they "bought in to property in 1979" is breathtaking. Just utterly mindboggling.
So it looks like the watered down CGT rise has a sting in its tail for property speculators. Well, at least most of the mainstream media's agenda has now been set - those broadsheet editors and BBC meeja executives will be hopping mad!
5. simon68 said...
“Had you bought an flat to let out fifteen years ago for £50,000…………………..60% on my original investment (which was probably highly geared).”
The properties price in Hong Kong has risen by 30% in just the first 3 months of 2010 if you take into account the currency strength of Hong Kong Dollars (pegged to US dollars) against Euro or Pounds the profits is even more.
There is no CGT tax in Hong Kong.
6. str 2007 said...
I don't know the HK maket atall, but if you've made 30% in 3 months then is it worth cashing that in while there's no CTG.
As a general rule 10% gains per annum is unsustainable never mind each month.
7. simon68 said...
The first quarter GDP growth in Hong Kong is 8.5%, properties price is well supported by fundamental economic data.
8. righttoleech said...
It is logical that the tax would work this way......it was always levied at marginal income tax rates when it was charged at same rates as income. It is telling that 'The Telegraph' feels that people who own multiple properties could be unsophisticated enough to have to be spoon fed this information.
9. tyrellcorporation said...
Doesn't this CGT hike change as of midnight last night? If so, it can't precipitate any panic selling and will probably give people less reason to sell their second homes, etc. I'd be tempted to hang on and wait for a CGT threshold change further down the line. HPC trigger kicked away IMO.
10. hpwatcher said...
Most landlords will find a way to avoid paying CGT anyway. All you have to do is switch your council tax to the place you wish to sell, and then go back to your original property. Easy!
Most landlords probably don't pay income tax anyway, that's why they can afford it all.
11. jack c said...
Below is an extract from an article in today's Citywire titled Unitised portfolios and investment bonds will benefit from CGT rise
"Amongst the captive victims of higher CGT rates are investors who chose lumpy holdings like property that cannot be disposed of gradually using annual allowances. This might be a welcome tilt away from the popular bias favouring bricks and mortar over financial assets. This is also incidentally the fastest growing area of tax collection from investigations as HMRC trawl through Land Registry data to look for property investors who have not declared or under-declared gains"
12. timmy t said...
I'm no accountant, but if you wanted to sell a second home, what is there to stop you setting up a company, selling the house to that company at a stupidly low price so you have no capital gain and no stamp duty, then getting the company to sell the house on the open market, bank the cash and pay yourself dividends over whatever period is required to avoid paying tax?
13. jack c said...
mark wadsworth - would appreciate your input on timmy t's posting @ Wednesday, June 23, 2010 10:03AM
timmy t - there is the hassle factor to consider so the gain would need to be significant to justify looking for an avoidance scheme
14. luckyjim said...
timmy t
HMRC keep an eye out for properties selling for well below market value as this has long been a way of avoiding stamp duty. If we could get away with it we would all sell outr houses for a £1 and sell the carpet for £400k.
As hpwatcher says, the best bet for the double home owner is to declare the 'holiday home' as their main home for a year before selling. Ask your MP for further details.
15. tom101 said...
I think you would use a trust to do this. They have been doing this 'down under' for a while now even though they have no CGT there i believe...
The hassle of setting up a trust or a limited company is only a perception. It is an affordable and straight forward process these days.
16. timmy t said...
luckyjim, I'm sure MW could clarify what HMRC look for, but the price would obviously be all inclusive so there would be no 400k carpets to declare. The company would have the benefit of being a FTB too so exempt up to 250K. Maybe I should be an accountant...
17. uncle tom said...
I don't think The Telegraph was very wise to launch its little campaign against CGT:
a) Because you don't get popular uprisings during a new govt.'s honeymoon period; and with a CGT hike well trailed, it was always going to be a lose-lose bet.
b) Because even amongst their core readership, there is not a lot of sympathy for those who were likely to lose the most from a hike.
c) Because most of their readers are smart enough to see the VI of the papers owners/editors behind such a campaign.
They might care to think that the CGT change was not as bad as it might have been, and that they can take some credit for that; in which event, it's time to shut up on the subject, and stop publishing silly pieces like this.
18. mark wadsworth said...
Jack C 13, Timmy T 12.
I'll tell you what's to stop you.
1. The transfer of land and buildings to a company is always liable to SDLT at market value (regardless of consideration, so applies even on a gift or share-for-assets deal).
2. The transfer of land and buildings to a company (or indeed anybody) is treated as a disposal at market value for CGT purposes, so you are taxed on the disposal as if you had sold it for market value (subject to a zillion little exemptions and traps).
3. The good news is that the company gets a base cost uplift, so if it sold the land and buildings the next day, there would be no corporation tax.
4. The even worse news is that when the company sells, there is another layer of SDLT (unless you do sub-sale) and then the money is stuck in the company. If you take it out as dividends, then you pay income tax all over again (or you go through the cost and hassle of liquidating it, possibly with further CGT due depending on what share capital you subscribed).
I hope this helps.
19. mark wadsworth said...
The FTB SDLT exemption does not apply to corporates, of course. Not the principal private residence exemption, even if it's a one-man company and that one man lives in it as his main residence.
As Lucky Jim says, designating something as your second home, putting in joint names to double allowances and claiming letting exemption where appropriate is the way forward.
20. timmy t said...
Thanks MW, I'll shelve any plans I had for becoming an accountant!
ReCaptcha: Iknows fackall
21. jack c said...
mark wadsworth - thanks for the comprehensive reply which is much appreciated
22. bidin'matime said...
Timmy T / Mark W
The time when it's worth it is if you build a house in your garden - always sell the land to your own company first (or a friend etc), so you pay no CGT on the land, otherwise, by the time you sell the house (or even a fenced off plot), it's no longer part of your garden, so no relief...
23. mark wadsworth said...
Bidin', true, that's another one to look out for.
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