My Personal Evidence Of Panic Cgt Selling

[getdoon_weebobby]

"Hi WEEBOBBY,

The Landlord would like his properties valued, would it be possible to gain access to your apartment this afternoon at 3.00 pm. Apologies, for the short notice, Unfortunately they contacted me on Friday afternoon, and I finished at 1.00 and didn’t pick up the message until this morning."

only moved into this property 2 months ago. In Belfast where prices are 40-50% down. looks like panic cgt selling perhaps.... i have emailed to see if its being valued with a view to selling.

Edited May 17, 2010 by getdoon_weebobby

[robo1968]

"Hi WEEBOBBY,

The Landlord would like his properties valued, would it be possible to gain access to your apartment this afternoon at 3.00 pm. Apologies, for the short notice, Unfortunately they contacted me on Friday afternoon, and I finished at 1.00 and didn’t pick up the message until this morning."

only moved into this property 2 months ago. In Belfast where prices are 40-50% down. looks like panic cgt selling perhaps.... i have emailed to see if its being valued with a view to selling.

PAAAANNNNIIIIICCCCC!

it'll be a subject on R2 today at 12, should be funny

[VeryMeanReversion]

In Belfast where prices are 40-50% down. looks like panic cgt selling perhaps

Bit late to panic about a tax bill after you've lost 50% in capital value.

VMR.

[miko]

Bit late to panic about a tax bill after you've lost 50% in capital value.

VMR.

lol

[getdoon_weebobby]

Bit late to panic about a tax bill after you've lost 50% in capital value.

VMR.

depend when you bought. we are back at 04/05 prices

prices went up 100% 05 to 07 , madness

[LiveinHope]

lol

but look on the bright side, the 40% CGT will feel a much smaller amount now

[LuckyOne]

Bit late to panic about a tax bill after you've lost 50% in capital value.

VMR.

It is not as irrational as it sounds. Locking in losses on one part of a portfolio to offset gains on another is a good way to manage an overall tax bill.

Given that most portfolios were constructed over time, this is actually good news as a higher CGT might result in winners and losers coming onto the market rather than just winners.

[The Masked Tulip]

Just found this online from a Google News search

Beat the CGT rise: Act now!

http://www.shoosmiths.co.uk/news/3037.asp

17 May 2010

The coalition government has announced that the rate of capital gains tax on non-business assets will rise in the emergency Budget that has been promised within the first 50 days of the new administration.

As we discussed in October 2009 (see http://www.shoosmiths.co.uk/services/2635.asp), the current 32% differential between the income and capital gains tax rates meant that a rise in the rate of capital gains tax was always likely to happen and the current thinking is that any rise will be to a level comparable with income tax rates.

Hopefully owners of non-business assets, for example second homes or shares held as investments, have already been preparing for this but a reminder of what can be done is set out below, although time to implement any scheme is now short.

Ideally, owners who are contemplating a sale should determine whether it is possible to sell before the emergency Budget so as to benefit from an 18% tax rate.

If, however, a full sale is not possible, a partial sale could be considered in order to benefit both from the lower capital gains tax rate and also any future growth in the value of the investments. The investments could be sold to a newly incorporated company funded by debt and/or equity including ‘rolled over’ value. However such transactions may well be subject to scrutiny by HM Revenue & Customs so must be structured properly to avoid being subject to income tax.

Another option is to sell assets to a trust before the emergency Budget. This sale will trigger a disposal at 18%. As the tax would need to be paid by 31 January 2012, any person following this route would have to be confident that a further sale to a third party could be achieved before that date or have another means of paying the tax. Equally transferring assets to family members would also trigger a disposal at 18%, although transfers between spouses will not work.

It is not yet known what, if anything, will happen to the rate of capital gains tax on business assets and whether the current entrepreneurs’ relief regime will remain unchanged.

For those individuals who are resident but not domiciled in the UK, it should be remembered that when any capital gains are remitted to the UK and therefore UK tax becomes payable, it is the capital gains tax rate at the time of the remittance that applies, not the rate at the date the assets were disposed of, so there is only a small window left to remit proceeds of non-business assets to the UK and benefit from the lower tax rate.

[LiveinHope]

It is not as irrational as it sounds. Locking in losses on one part of a portfolio to offset gains on another is a good way to manage an overall tax bill.

Given that most portfolios were constructed over time, this is actually good news as a higher CGT might result in winners and losers coming onto the market rather than just winners.

But how many of the new BTLers have a portfolio ?

[Ash4781]

Aren't they in it for the long term?

[miko]

but look on the bright side, the 40% CGT will feel a much smaller amount now

Maybe he is in a rush to sell up while there is still a profit in the property as he wants to feel a nice warm glow when he pays the CGT even if it is at only 18% , paying x at 18% maybe make him feel better that paying zero when the tax is 40%.

[Toto deVeer]

Just as an aside, wouldn't the introduction of a high CGT have a large negative impact on the amount of leverage one could get from a bank for the purchase of additional properties? Or is CGT not considered in this calculation.

[LuckyOne]

But how many of the new BTLers have a portfolio ?

The late arrivals to the game will get slaughtered and are likely to only have one property.

The most greedy of those who have been involved for a bit longer (say 10 years or so) could well have doubled up every three years or so as they saw gains building. The way that bubbles work is that someone could have bought one BTL in say 2000. By 2004, they saw a lot of "equity" build up and bought two more. By 2008, they saw even more "equity" build up and bought 4 more. They now own 7 places, 4 with negative equity, 2 with some positive equity and 1 with a lot of equity.

Given the difficulties in rolling over BTL debt and the change in the risk / reward ratio with an increase in CGT, this group may well decide to sell one or two "good" projects and 4 "bad" projects rather than just the one excellent project that would be the most rational choice if CGT were the only consideration.

All of a sudden, the total increase in supply is much larger than just the one really good project.

I know that my example is based purely on conjecture but I have seen enough greed and then fear in the actions of people and markets over time that I am comfortable that my conjecture is a roughly accurate description of how the most financially vulnerable sector of the BTL market have and will behave. The Wilsons are the most obvious example of this sort of behaviour.

[LuckyOne]

Just as an aside, wouldn't the introduction of a high CGT have a large negative impact on the amount of leverage one could get from a bank for the purchase of additional properties? Or is CGT not considered in this calculation.

In my view, CGT rates impact the demand for credit (higher CGT = lower demand) rather than the supply of credit.

In a perverse way, raising CGT rates might actually extend the period of very low base rates as the BoE will be able to observe lower demand for credit and possibly attribute it to a weak economy rather than higher tax rates.

[getdoon_weebobby]

Maybe he is in a rush to sell up while there is still a profit in the property as he wants to feel a nice warm glow when he pays the CGT even if it is at only 18% , paying x at 18% maybe make him feel better that paying zero when the tax is 40%.

dont know who the landlord is , and from letting agent its clear he has properties. this one was built in 2005 so hes down on his purchase regardless id say

[LiveinHope]

The late arrivals to the game will get slaughtered and are likely to only have one property.

I was thinking of 'portfolio' in the strict diversified sense of the word

Of course, BTLers may think of it as:

1 flat + 1 terraced + 1 semi + 1 detached

Edited May 17, 2010 by LiveinHope

[LuckyOne]

I was thinking of 'portfolio' in the strict diversified sense of the word

Of course, BTLers may think of it as:

1 flat + 1 terraced + 1 semi + 1 detached

Fair point. My language was sloppy.

To your point, most people who understand portfolio effects, diversification, correlation and value are unlikely to have been involved in the BTL market for a long time. They might get their chance again soon though .......

[LiveinHope]

Most people who understand portfolio effects, diversification, correlation and value are unlikely to have been involved in the BTL market for a long time.

Quite

They might get their chance again soon though .......

Quite so, the better type of landlord IMO

[sbn]

Just heard an almost identical piece of anec from a friend at work. Sit tight folks - the drops are gonna be MEGA.

Hey BTL'ers* - on your knees and lick it up.

*Borrow to let of course - nothing against people using their own money.

Edited May 17, 2010 by sbn

[grizzly bear]

Just heard an almost identical piece of anec from a friend at work. Sit tight folks - the drops are gonna be MEGA.

Hey BTL'ers* - on your knees and lick it up.

*Borrow to let of course - nothing against people using their own money.

Yes my landlord has called too, happy to sell, but wants peak price.

Annoyingly house along road has been on market for 2 years and finally got peak price (foreiggn buyers who I bet don't really know local market)....

But when will rise come in - if its from 22 June then no time for CGT panic selling!

[Bloo Loo]

I think most BTL thought they would get a nice tax free gain, specially if they kept it all quiet and didnt declare a business.

Second owners....frack em....they bought the place to save money...probably as an investment too....a loophole is closed.

[getdoon_weebobby]

Are you stupid? If he's down he doesn't have a CAPITAL GAIN does he?

"The Landlord would like his properties valued,"

the point of my post is he may be looking to offload some properties . some of which must surely have a cgt charge due on sale

Edited May 17, 2010 by getdoon_weebobby

[Lagarde's Drift]

"The Landlord would like his properties valued,"

the point of my post is he may be looking to offload some properties . some of which must surely have a cgt charge due on sale

Yes, he could sell your flat at, say, -40k and sell another property for +125k and pay 18% tax on the difference over the limit. If he waited he could be looking at selling for -80k and +40k and getting SFA.

I imagine deciding the CGT on properties for a year would be similar to deciding them for shares, except they are illiquid, have lots of paperwork and cost a heck of a lot to buy / sell. The income is poorer, too. Bring it on!!

[Goat]

Just heard an almost identical piece of anec from a friend at work. Sit tight folks - the drops are gonna be MEGA.

Will depend whether "Ozzy" changes the CGT rules w.e.f 22 June 2010 or 6 April 2011 - my money's on the former.

Good luck trying to offload your BTLs over the next 4 weeks.

[LuckyOne]

Will depend whether "Ozzy" changes the CGT rules w.e.f 22 June 2010 or 6 April 2011 - my money's on the former.

Good luck trying to offload your BTLs over the next 4 weeks.

Extraordinary times call for extraordinary measures. Even backdating the new CGT regime to 6 April 2010 is not that extraordinary. Now 6 April 2005 or earlier, that would be extraordinary.