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Fairyland

Budget 2017: buy-to-let investors face higher taxes on capital gains

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Telegraph: Budget 2017: buy-to-let investors face higher taxes on capital gains

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Buy-to-let investors who have set up as companies will face increased taxes when they eventually sell their properties.

Today's Budget included changes to the way gains are calculated which will results in higher tax bill, although the effects are unlikely to be felt for some years.

The key change is that "indexation" - a tax relief which allows gains to be reduced depending on the duration of ownership - will be frozen from January 2018.

I thought investors were in BTL for a long time ...

Edited by Fairyland

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Here is the work out 

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How much more capital gains tax will buy-to-let investors pay?

Assume a landlord bought a property within a company in March 2001 for £120,000, and sold it in October 2017 for £200,000. The gain is £80,000.

Under the current system of indexation relief you apply an "indexation allowance"  depending on your period of ownership. This figure is supplied by HMRC and for the period concerned - March 2001 to October 2017 - is 0.599. You multiply this factor by the price you originally paid. So, £120,000 x 0.599 =£71,880.

 

You then take away your indexation from the profit, leaving you with £8,120. The indexed gain of £8,120 is then subject to corporation tax at 19pc, totalling £1,542.80.

By contrast, after indexation allowance is scrapped, if the property in the example above were purchased on 15 Jan 2018 for £120,000 and sold in May 2020 for £200,000 the gain would be £80,000. 

No indexation would be available and the total gain considered would be the £80,000.  This means the tax, at the now reduced 17pc rate, would be due on the full £80,000, totalling £13,600.

 

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13 minutes ago, Freki said:

Is it frozen or scrapped?

"Although this is a proposal for freezing indexation allowance, businesses should be prepared for an eventual abolition of the relief in the future and plan accordingly."

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this sounds like a terrible thing for the housing market. btl landlords will most likely not sell their houses back into the market ever just passing them on in inheritance. this tax is about the worst idea ever. 

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4 minutes ago, jimmy2x3 said:

this sounds like a terrible thing for the housing market. btl landlords will most likely not sell their houses back into the market ever just passing them on in inheritance. this tax is about the worst idea ever. 

And the I/O backed ones ?

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1 hour ago, jimmy2x3 said:

this sounds like a terrible thing for the housing market. btl landlords will most likely not sell their houses back into the market ever just passing them on in inheritance. this tax is about the worst idea ever. 

A better idea would be 25% CGT until end 2018, 50% CGT until end 2019, 90% CGT until end 2020 then 100% after that?

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1 hour ago, jimmy2x3 said:

this sounds like a terrible thing for the housing market. btl landlords will most likely not sell their houses back into the market ever just passing them on in inheritance. this tax is about the worst idea ever. 

No they'll have to sell if they can't pay back their loans. So it's a great idea.

 

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Just found this extensive housing news source, that I was not aware of. IT has a large part on the housing side of the budget   

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HousingNet News We source news from over 50 different websites every day for all the UK Housing news which is then compiled in to HousingNet News and delivered every weekday morning to 15,890 folks.

 

View the latest edition of 'HousingNet News' here

https://housingnet.co.uk/Housing.html

https://housingnet.co.uk/news

https://twitter.com/housingnet

 

 

 

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1 hour ago, kibuc said:

Does any other CGT-taxable asset benefit from such "indexation" at the moment?

Corporations pay corporation tax on profits even if profits are made because of gain arising from a sale of an asset (i.e. companies never pay Capital Gains Tax so by definition a rule about CGT cannot apply to a company). As best I understand matters (which is really not well) the key statute is TCGA 1992 and the rules on reliefs generally apply to both individuals and corporation (though there is clearly going to be a jungle of other statutes and later amendments etc.).

Brown removed indexation from the world of taxation paid by individuals way back in 2008:

Quote

Reform of capital gains tax
– From April 1998 indexation allowance was frozen and replaced with taper relief.
– Then from April 2008, both indexation allowance and taper relief were abolished and replaced with a single flat rate of 18%.
– An entrepreneurs’ relief was later implemented giving an effective rate of 10% for the first £1m of gains qualifying for relief

Source

I think the simple answer to your question is that if the legal person is a corporation then everything that is not separately exempt will get the benefit of indexation allowance and if the legal person paying the tax is an individual then there is no indexation allowance on anything. (Note from Brown's adventure with indexation allowance for individuals that it was first frozen and then scrapped - hence why some of the commentary from tax professionals suggests that people should plan for it to be scrapped.)

 

Edited by Beary McBearface

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Does this have any implications for overseas based landlords with UK property?...

(from the Coporate Tax section of todays budget)

Quote

Changing how non-resident companies’ UK property income and certain gains are taxed – From April 2020, income that non-resident companies receive from UK property will be chargeable to corporation tax rather than income tax. Also from that date, gains that arise to non-resident companies on the disposal of UK property will be charged to corporation tax rather than CGT. (53)

 

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So previously, did the benefit of the indexation doesn't increase as you other the asset longer, so did it encourage hoarding as a tax dodge?

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3.30 Taxing gains made by non-residents on immovable property – To align the UK with other countries and remove an advantage which non-residents have over UK residents, all gains on non-resident disposals of UK property will be brought within the scope of UK tax. This will apply to gains accrued on or after April 2019. The government intends to include targeted exemptions for institutional investors such as pension funds. (52)

I don't understand this.  Busta says that, as a non-resident, he does have to pay CGT on gains made if he sells UK property, but only on the gains made since April 2015.  So what is the point of this new change?

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On 22/11/2017 at 6:27 PM, RomfordDon said:

It will stop BTL from buying more properties that's for sure.

It offers some future hope for me, because if we have a HPC in some of very expensive areas of housing, (not assume as per example below mad-gainz more from 2018) then it may mean fewer speculators/BTLers in a company vehicle into that HPC. 

Just another cooler to property investment, although on company side of things, and hopefully more of a tilt to homeownership.  Could be sharper still mind.

Quote

 

...Gains by businesses, including incorporated landlords, are taxed at the general rate of corporation tax.

Corporation tax is 19pc, falling to 17pc by 2020. 

How much more capital gains tax will buy-to-let investors pay?

...The key change is that "indexation" - a tax relief which allows gains to be reduced depending on the duration of ownership - will be frozen from January 2018.

"Although this is a proposal for freezing indexation allowance, businesses should be prepared for an eventual abolition of the relief in the future and plan accordingly."

........You then take away your indexation from the profit, leaving you with £8,120. The indexed gain of £8,120 is then subject to corporation tax at 19pc, totalling £1,542.80.

........By contrast, after indexation allowance is scrapped, if the property in the example above were purchased on 15 Jan 2018 for £120,000 and sold in May 2020 for £200,000 the gain would be £80,000. 

No indexation would be available and the total gain considered would be the £80,000.  This means the tax, at the now reduced 17pc rate, would be due on the full £80,000, totalling £13,600.

http://www.telegraph.co.uk/money/consumer-affairs/budget-2017-buy-to-let-investors-face-higher-taxes-capital-gains/

 

 

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