Btlers Selling Up

[redwing]

I was musing on what I'd do right now if I had BTL properties. I'd be selling and taking a profit on the asset.

But...

Surely I have to pay CGT on the gains? Being essentially greedy I'd want to avoid paying any taxes on these.

How would this effect my thinking. Would I sell one property this WInter and another in April (next tax year)?

How many typical £170,000 properties could I sell at a gain of say £30,000 having had them for, say, 5 years?

Will this sort of calculation be having an effect on how quickly the correction takes place, in your view?

[AgeingBabyBoomer]

I was musing on what I'd do right now if I had BTL properties. I'd be selling and taking a profit on the asset.

But...

Surely I have to pay CGT on the gains? Being essentially greedy I'd want to avoid paying any taxes on these.

How would this effect my thinking. Would I sell one property this WInter and another in April (next tax year)?

How many typical £170,000 properties could I sell at a gain of say £30,000 having had them for, say, 5 years?

Will this sort of calculation be having an effect on how quickly the correction takes place, in your view?

Isn't a part of the BTL free money scam involve claiming it as PPR,

so that taper relief applies?

Let's face it , if they are prepared to lie about incomes on a self-cert mortgage,

lie about the buying price to keep the headline figures looking peachy

(whilst being 'gifted' the deposit from their mortgage lender), then

a few porkies to the IR is probably a walk in the park.

I expect without this tax dodge the figures for BTL failed to stack

up a long time ago - even if there were capital gains to be had.

ABB

[The Womble]

You get taper relief of up to 60% over 10 years. So you would have to pay CGT on 40% of the gains if you had the property for 10 years. However, if you had any capital losses to carry over you could off-set those (like tech share losses).

[Goat]

Don't forget that the first £8,500 of capital gains are tax free.

[devils advocate]

There are a variety of reliefs available depending on circumstances. However, if one went to an accountant (advisable to sort it out) then the accountant, if he suspects tax fraud (ie not telling the revenue about any income), is under a legal obligation to infrom the National Criminal Intelligence Service of the relevant details.

In any event, when the BTL is sold, the Revenue will have details of the sale and may then approach the BTLer to ask about income taxes.

[zorn]

Isn't a part of the BTL free money scam involve claiming it as PPR,

so that taper relief applies?

PPR doesn't need taper relief, as there's no CGT at all to pay.

You get taper relief of up to 60% over 10 years. So you would have to pay CGT on 40% of the gains if you had the property for 10 years. However, if you had any capital losses to carry over you could off-set those (like tech share losses).

Maximum taper relief for non-business assets is 40%, not 60%, so you pay CGT on 60% of the gains. I don't know if you can claim a BTL property is a business asset or not.

[AgeingBabyBoomer]

PPR doesn't need taper relief, as there's no CGT at all to pay.

Maximum taper relief for non-business assets is 40%, not 60%, so you pay CGT on 60% of the gains. I don't know if you can claim a BTL property is a business asset or not.

Oh, my mistake - though I am horrified that taper relief is

available to the other properties - no wonder there is such

a great hole in public finances.

Hopefully Mr Brown will close up this haemorrage in the tax

system pretty soon.

ABB

[Goat]

PPR doesn't need taper relief, as there's no CGT at all to pay.

Maximum taper relief for non-business assets is 40%, not 60%, so you pay CGT on 60% of the gains. I don't know if you can claim a BTL property is a business asset or not.

You can't unless it is a furnished holiday letting.

Also it is worth noting that the longest the assets could have been held for is 8 complete tax years so up to 5 April 2006 the maximum taper is 30% (and in most cases a lot less).

[The Womble]

zorn - apologies. You are quite right, it is 40% exempt and 60% to pay on.

I thought that there was some relief for assets pre-1998 as well. Not sure.

[edited to add a millenium to the date before which relief applied]

Edited January 3, 2006 by The Womble

[Goat]

zorn - apologies. You are quite right, it is 40% exempt and 60% to pay on.

I thought that there was some relief for assets pre-998 as well. Not sure.

Indexation allowance is available on assets held before 5 April 1998 up to that date. Basically the original cost of the asset is increased by the retail price index so that you are not taxed on the gain resulting from inflation.

As an aside, taper relief is not available to companies, who instead continue to claim indexation allowance.

Edited January 3, 2006 by Young Goat

[isv]

I suspect a lot of BTLers hold their properties in limited companies that they might well now need to liquidate - this will complicate disposal nicely as unless you can get the IR to grant you an ESC16 your gains/retained profits will be taxed as income not capital gains.

[Last Hun Standing]

Not sure if anyone has mentioned this before, but there is a CGT trap whereby if a person has remortgaged a property standing at a gain to max out the amount of withdrawn equity - to gear up and purchase another, upon disposal the proceeds are not enough to repay the mortgage and the tax due on the gain....

An illustrative example (numbers not real but work).

buy prop 1 @ £60k mortgage £50k. price rises to £100k, mortgage increased to £85k. £35k withdrawn to fund next purchase.

Forced disposal at £90k. overall gain £30k. Assume taper / personal allowance therefore tax on 25k. @ 40% = CGT £10k tax bill.

Cash position at end proceeds 90k - mortgage 85k - CGT 10k = property speculator unable to pay tax. How much sympathy and compassion will HMR&C have?

Above assumes the £35k withdrawn has also been lost and is unavailable.

The amplification effect of long leverage could be truly frightening. Of course there is an administrative delay between making a gain - getting the cash and having to pay the tax. This would delay the implosion of a portfolio, but a staggered implosion of forced sale to pay additional margin to a lender, followed by a tax bill, and then additional forced sales on a large portfolio could lead to substantial additional supply.

[woody]

Young Goat - I concur, but the problem with The Last Hun Standing logic is that the current system of self assessment allows too many people to slip through the net. Many people won't even be asked to fill in a form never mind whether they do it honestly. There must be billions slipping through the net.

Any before anyone jumps down my throat, I did do the CTA course and am aware of the administration system out there. Even more so do I think it is deficient. I genuinely think that if people paid their taxes honestly, there could be a much lower tax rate in place...

[Last Hun Standing]

I agree that the tax bill will be a lagging factor, not one forcing the first disposal. As such it is unable to start the decline in any particular area.

However it will be a factor and part of the mechanismn by which teetering portfolios collapse, particularly for the hold on at all costs type of 'investor', who would never willingly give up an 'long term investment'.

Localised glut conditions will occur when there is excess supply and sentiment has turned against purchase.

IF purchasers pay stamp taxes, is there an automatic mechanismn by which the CGT people chase the owner for a return?

[johnnyw]

I agree that the tax bill will be a lagging factor, not one forcing the first disposal. As such it is unable to start the decline in any particular area.

However it will be a factor and part of the mechanismn by which teetering portfolios collapse, particularly for the hold on at all costs type of 'investor', who would never willingly give up an 'long term investment'.

Localised glut conditions will occur when there is excess supply and sentiment has turned against purchase.

IF purchasers pay stamp taxes, is there an automatic mechanismn by which the CGT people chase the owner for a return?

Theres a new stamp duty form that has needed to be completed for the last 18 months or so - it gives all the info needed for the inland revenue to pursue unpaid cgt. When you sell the info is there to be used. And you cant avoid the form being submitted because you cant register the property at hmlr unless the duty has been paid. So even if people have avoided it in the past it wont be so easy now. And undeclared rent will be picked up to.

And of course isnt it now a criminal offence to fail to declare the tax?

Of course it could have the opposite effect - "i cant sell my BTL because i will get caught on all my past undeclared rent"

There again it could go "i cant sell my BTL because i will get caught on all my past undeclared rent but i need cash to pay my debts so I will have to sell my own house instead and rent"

Edited January 4, 2006 by johnnyw

[johnnyw]

Besides, I didn't vote for them so why should I pay them any tax ?

Buckers

This is an intersting idea - if you vote for the winners you pay the tax, if you vote for a looser you dont pay any.

How would you deal with people who dont vote or spoil their papers? - do they pay 50%

I believe this would lead to tactical voting.