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Very speculative thread. Not so much counting chickens before they've hatched as speculating on the mechanics of their demise whilst it conjectured, but before it arrives. Some thoughts from a conversation. We assume the following: At some point between 2016 and 2020 BCBS risk-weights start to widen the difference between mortgage interest rates on interest-only buy-to-let mortgages and rates on repayment mortgages offered to owner-occupiers, i.e. BTL mortgage rates go up Over the same time scale, Clause 24 of the Finance Act 2015 is applied in its current form turning cash flows on leveraged property portfolios net negative as the rents are inadequate to cover the mortgage interest and the tax, (any ability of leveraged landlords to raise rents is assumed to be inadequate to cover the rising cash outflows). There are then two end games. Either the landlord pays the mortgage interest but starts to build up a debt to the Revenue on the income tax they owe or they pay the Revenue in full and slip into arrears with their lenders. As discussed on the Tax Relief thread (h/t pipllman for the reference), where a creditor makes a bankruptcy petition against a debtor, as assets are disposed of by the trustee, when a CGT liability arises, the CGT represents the first charge, (i.e. AFAIK the Revenue skips in front of the secured creditor and gets paid first). Considering a portfolio landlord, this means that once the Revenue make a bankruptcy petition and the landlord is declared bankrupt then as the BTL properties are sold, the Revenue are paid off and then the banks get what is left. Now, some more speculation. A leveraged landlord in denial will presumably pay the mortgage interest charges as they arise and not make adequate provision for the income tax bill, hence when the bill arrives they won't be able to pay it, i.e. the supposition is that denial leads to a debt to the Revenue. The bank know that if the Revenue can force bankruptcy before the bank can repossess, the bank will face larger losses as the CGT has to be paid first, hence the bank are highly motivated to call in the loan before the Revenue can petition for bankruptcy The Revenue will know that if the bank get to repossess before the Revenue can petition for bankruptcy, then the bank may leave nothing but an asset-less ex landlord unable to pay their CGT. The thing that is new is Clause 24. Before that, with low mortgage interest rates, you had nothing to rapidly bankrupt portfolio leveraged landlords, but now you do.
Was with a friend at the weekend ( yes really ) .. hes been lucky re a site but starting to panic about Capital Gains Tax . He bought a site for £25,000 , got planning permission a fews ago , got it valued last week with intension of selling ( as is ) now the site is worth £160,000 . He cant believe it ... He is renting , and has no other property , this site is his only asset . Is he liable for CGT ??
How will UKAR handle property disposals from portfolio landlords in light of the recent Budget? It seems to me that the most aggressively leveraged landlords, who will be worst affected by the recent Budget changes to how tax relief on BTL mortgage interest and taxable rental income are calculated, are also highly likely to have mortgages tied up in UKAR. The 'bad banks' whose mortgage books UK Asset Resolution was set up to run down were in part 'bad' precisely because they had been aggressively lending into the buy-to-let sector: That being the case it would be surprising if the most aggressively leveraged landlords had not taken out mortgages with these lenders prior to them being rolled into UKAR. In fact, aggressively leveraged landlords are by definition subprime property speculators - betting everything on house price appreciation at very high leverage, on thin margins and with no real repayment plan - and so in some respects they are the quintessential remaining UKAR borrower, being the least likely to have been able to remortgage elsewhere. In light of the recent Budget many of these aggressively leveraged landlords will be looking at negative cash flows in the not too distant future and may as a result be looking to dispose of some or all of their property portfolios. They may encounter several issues in relation to this, not least of which being that aggressive mortgage equity withdrawal may mean that they now lack the equity to pay their CGT (h/t Bland Unsight and Frizzers), but those with mortgages tied up in UKAR may have additional problems. The issue is clauses like this one from Mortgage Express, that allow UKAR to enforce the repayment of all outstanding mortgages on the disposal of a single property: Mortgage Express Terms & Conditions (h/t little fish) Aggressively leveraged landlords might therefore find that they have placed themselves in a position where they cannot even safely dispose of those properties on which they have little or no Capital Gains Tax due, as doing so would allow UKAR to force the sale of other properties (perhaps with unpayable CGT bills, in negative equity, or in concentrated areas flooding the local housing market and depreciating values). UKAR have shown every inclination to enact these clauses in the past, especially in regards to unsustainable portfolios:
At the link a pdf with a plain English (hopefully) discussion of the fact that if you continually use mortgage equity withdrawal to extract the capital gain from a buy-to-let, the answer to the question in the thread title is that in the end HMRC own your buy-to-let, and if you are really incautious you may create a situation where they end up having a claim on your other assets too. Who owns your buy-to-let? Please feel free to tweet, e-mail or print it off and leave it surreptitiously in the path of anyone who is using mortgage equity withdrawal to treat a buy-to-let as a piggy bank. I've never dealt with a mortgage broker, but neither have I ever heard of one warning about the interaction between mortgage equity withdrawal and Capital Gains Tax. If you want to improve it or change it PM me and I'll give you a link to the same document as .rtf or .doc according to your preference. Enjoy.