CGT, no G&T

[markyh]

 

the solution is simple.

no need to change tax thresholds at all,just get rid of taper relief!!!😄

I thought they scrapped taper relief years ago? 

[Pop321]

 

CGT is based on the value of the asset, even if given away or sold for £1

Yep I know,  Hence the need to strip the place and devalue it prior to selling it at the level I suggested. Ie an independent valuation.

That’s why in my example I said £350k ie it’s value. The actual transfer of cash for the asset may be at £1 but the CGT is at £350k. The £1 wasn’t mentioned because as you say it’s an irrelevance. 

My example never mentions the physical price paid which as you rightly suggest is probably a nominal amount because that does not impact the CGT. The nominal price paid brings into play IHT and the 7 year PET rule...but that’s another issue. 

Edited November 13, 2020 by Pop321

[Pop321]

 

I thought they scrapped taper relief years ago? 

They did....so now if you hold a property for 15 years the impact of just normal inflation (because of the size of the asset value) is an enormous factor on CGT for property. 

I always sold property as I bought whereas those on the 118 expansion scheme 😆 who borrow on existing property to buy more houses may find themselves effectively ‘locked in’  

It is distinctly possible those using the leverage model will owe more on a house than they will collect ‘net’ if the sell it after tax. Effectively they have borrowed and spent the money they have made on ‘mad gainz’ but the tax is still due at sale.  

Now if they have spent all the money made on Range Rovers, Quail Eggs and the Maldives ie the rent had funded a lifestyle rather than being used to pay off debts....then there is no exit plan. Only death can save them and if IHT rules change then maybe not even that. 😉

[adarmo]

 

They did....so now if you hold a property for 15 years the impact of just normal inflation (because of the size of the asset value) is an enormous factor on CGT for property. 

I always sold property as I bought whereas those on the 118 expansion scheme 😆 who borrow on existing property to buy more houses may find themselves effectively ‘locked in’  

It is distinctly possible those using the leverage model will owe more on a house than they will collect ‘net’ if the sell it after tax. Effectively they have borrowed and spent the money they have made on ‘mad gainz’ but the tax is still due at sale.  

Now if they have spent all the money made on Range Rovers, Quail Eggs and the Maldives ie the rent had funded a lifestyle rather than being used to pay off debts....then there is no exit plan. Only death can save them and if IHT rules change then maybe not even that. 😉

Ohhhh, quail eggs dipped in salt and pepper are an excellent snack. Bit indulgent though. 

[Wise Old Elf]

Had some thoughts after reading this yesterday.

Would the "savvy" BTL entrepreneurs that have financed their property empires with 80%+ interest only mortgages ever be able to sell up if 40% of their capital gain is taxed? They wouldn't be able to repay the mortgage & the CGT bill.

If they decided they would therefore never sell the property the proposal is that CGT liability would be due on death or passed on to whoever inherited the property (based on the original purchase price), becoming their problem. Think it said this would be in addition to IHT.

But, this would not take affect for a couple of years so a window of opportunity to avoid the above.

 

[satsuma]

 

Had some thoughts after reading this yesterday.

Would the "savvy" BTL entrepreneurs that have financed their property empires with 80%+ interest only mortgages ever be able to sell up if 40% of their capital gain is taxed? They wouldn't be able to repay the mortgage & the CGT bill.

If they decided they would therefore never sell the property the proposal is that CGT liability would be due on death or passed on to whoever inherited the property (based on the original purchase price), becoming their problem. Think it said this would be in addition to IHT.

But, this would not take affect for a couple of years so a window of opportunity to avoid the above.

 

The tax is on the gain, they would sell and clear the mortgage, if the sale price is the same as purchase price no CGT, however if they remortgaged to clear other debt or fund a lavish lifestyle they could be in trouble.  Upon sale the CGT increase would mean they keep less of the gain.  

[Wise Old Elf]

 

The tax is on the gain, they would sell and clear the mortgage, if the sale price is the same as purchase price no CGT, however if they remortgaged to clear other debt or fund a lavish lifestyle they could be in trouble.  Upon sale the CGT increase would mean they keep less of the gain.  

Agreed, but many of them have continually remortgaged to the max possible to provide the deposits for the next houses & maintain maximum mortgage tax relief (which they didn't expect to be removed). Someone I know bought a BTL some years ago at £145k & their IO mortgage is now in the region of £250k I believe. They could maybe sell it for £295k but if they had to pay 40% CGT that would leave less than the mortgage.

[nickb1]

 

Landlord sounds like such a dirty word (not quite so much where I live as there's an abundance of property in many areas), but I agree with PeanutButter, sometimes people need rentals, so why not offer something decent and at value. My wife had a financial investment that in part, was in commercial real estate. During the first wave, that took a pounding with everyone working from home, and although I have no head for finances, I recommended she buy a place in a very popular coastal resort, that's less likely to be affected by future climate problems. The problem with the location is its full of people buying places (mostly apartments) for seasonal summer renting. Out of season many places have their shutters closed, so it leaves very little on the market for annual renters. She used her investment to buy a place for yearly renting, it's by the sea, but also close to the schools. We haven't got they keys yet, but thank goodness the money came out before this second wave as she'd already taken a loss. It should rent very quickly, and in 17 years or so, we'll hopefully be able to take early retirement and go live there ourselves as it's a location we love too.

the problem is not that there are private landlords it's that the land rent is not (sufficiently) taxed and redistributed as community benefits. If the landlord were only remunerated for service provided rents would be low everywhere. site rental / amenity value, as opposed to house maintenance services, arises from the surrounding community not the landlord nor even their bricks and mortar, so should be returned to the community. 

[satsuma]

 

Agreed, but many of them have continually remortgaged to the max possible to provide the deposits for the next houses & maintain maximum mortgage tax relief (which they didn't expect to be removed). Someone I know bought a BTL some years ago at £145k & their IO mortgage is now in the region of £250k I believe. They could maybe sell it for £295k but if they had to pay 40% CGT that would leave less than the mortgage.

Very good point, those with large gains and remortgage like that could be experiencing squeaky bum syndrome 

[Wise Old Elf]

 

Very good point, those with large gains and remortgage like that could be experiencing squeaky bum syndrome 

I suspect so, once they realise what is happening 😱

[Wise Old Elf]

 

Very good point, those with large gains and remortgage like that could be experiencing squeaky bum syndrome 

 

[satsuma]

I have seen awful people leave their jobs as teachers to "focus on their property portfolio" and this is built on a flood of debt.  It would be ironic if the whole thing came crashing down due to the same government that was so keen to pump up prices.     

[Pop321]

 

They did....so now if you hold a property for 15 years the impact of just normal inflation (because of the size of the asset value) is an enormous factor on CGT for property. 

I always sold property as I bought whereas those on the 118 expansion scheme 😆 who borrow on existing property to buy more houses may find themselves effectively ‘locked in’  

It is distinctly possible those using the leverage model will owe more on a house than they will collect ‘net’ if the sell it after tax. Effectively they have borrowed and spent the money they have made on ‘mad gainz’ but the tax is still due at sale.  

Now if they have spent all the money made on Range Rovers, Quail Eggs and the Maldives ie the rent had funded a lifestyle rather than being used to pay off debts....then there is no exit plan. Only death can save them and if IHT rules change then maybe not even that. 😉

 

 

Agreed, but many of them have continually remortgaged to the max possible to provide the deposits for the next houses & maintain maximum mortgage tax relief (which they didn't expect to be removed). Someone I know bought a BTL some years ago at £145k & their IO mortgage is now in the region of £250k I believe. They could maybe sell it for £295k but if they had to pay 40% CGT that would leave less than the mortgage.

 

 

Very good point, those with large gains and remortgage like that could be experiencing squeaky bum syndrome 

I said that...... you just copied without the funny quail eggs bit 😆😆

[Fred1981]

As a general rule, there is no CGT charge upon death. ... When the administration of the estate is complete, the assets are passed to those that inherited them as if they had paid the market value of the asset at the date of death.

[Fred1981]

Rather than sell, older landlords could probably equity release funds from their BTL properties. Hold the properties until they die, which would then be inherited free of CGT but subject to IHT.

[Wise Old Elf]

 

As a general rule, there is no CGT charge upon death. ... When the administration of the estate is complete, the assets are passed to those that inherited them as if they had paid the market value of the asset at the date of death.

Reading the original article, o

 

 

 

 

I said that...... you just copied without the funny quail eggs bit 😆😆

Didn't copy but did fail to read your post so apologies 😔

[Wise Old Elf]

 

As a general rule, there is no CGT charge upon death. ... When the administration of the estate is complete, the assets are passed to those that inherited them as if they had paid the market value of the asset at the date of death.

Arrggghh, trouble posting today. Reading the original article, one of the proposals is to scrap CGT ending when you die & anyone inheriting an asset would still have to pay it, based on the original purchase price, if the asset was ever sold. Not clear how this fits in with IHT.

[BufferBear Bitcoin Bull]

 

Arrggghh, trouble posting today. Reading the original article, one of the proposals is to scrap CGT ending when you die & anyone inheriting an asset would still have to pay it, based on the original purchase price, if the asset was ever sold. Not clear how this fits in with IHT.

We paid CGT, on the gains, when the asset was sold a few years later, which was 'cheaper' than 40% IHT.

[Pop321]

There is a recommendation to equalise CGT and income tax. However the report then suggests an inflation allowance should be reintroduced. 

The rational is a house bought for £100k in 2000 is now worth £170k then it hasn’t appreciated in value ie it’s been a store of wealth but not increased. Anything over £170k is treated as gain and taxed. 

This could infact be more generous for some landlords particularly the London mob. 

In the North a £12500 allowance (or £25k is joint) is much more valuable. However if your Nottinghill flat has appreciated £600k then indexation allowance work betters although that higher rate should catch up again. . 

This will be interesting. 

The removal of £12.5k would hit stocks and shares traders perhaps more (again assuming inflation allowance was reintroduced). 

If they introduce a higher rate and no allowance for inflation some properties eg Nottinghill will not come back to the market in a lifetime. Eg £200k paid in 2000 now worth £800k....£600k gain...tax £240k. Then people won’t sell a £800k investment asset if they only get £560k. The rights and wrongs can be debated but no one pays £240k tax on an asset they don’t need to sell....so forced sellers only. 

[captainb]

 

There is a recommendation to equalise CGT and income tax. However the report then suggests an inflation allowance should be reintroduced. 

The rational is a house bought for £100k in 2000 is now worth £170k then it hasn’t appreciated in value ie it’s been a store of wealth but not increased. Anything over £170k is treated as gain and taxed. 

This could infact be more generous for some landlords particularly the London mob. 

In the North a £12500 allowance (or £25k is joint) is much more valuable. However if your Nottinghill flat has appreciated £600k then indexation allowance work betters although that higher rate should catch up again. . 

This will be interesting. 

The removal of £12.5k would hit stocks and shares traders perhaps more (again assuming inflation allowance was reintroduced). 

If they introduce a higher rate and no allowance for inflation some properties eg Nottinghill will not come back to the market in a lifetime. Eg £200k paid in 2000 now worth £800k....£600k gain...tax £240k. Then people won’t sell a £800k investment asset if they only get £560k. The rights and wrongs can be debated but no one pays £240k tax on an asset they don’t need to sell....so forced sellers only. 

At some point you do. Unless you hold till the grave and get taxed then. Not exactally the best winning card trick to play.

[Pop321]

 

At some point you do. Unless you hold till the grave and get taxed then. Not exactally the best winning card trick to play.

I think that is what I am suggesting. Hold until the grave and sweat the asset.😉

[captainb]

 

I think that is what I am suggesting. Hold until the grave and sweat the asset.😉

Ha indeed.

But lets say you are 65.. your sweating takes effort at a good time, a nightmare at a bad time.

Your sum of "sweating" till your reasonably expected death will not equal the gain after tax. You could then of course follow the sale by investment in something with less effort i.e a REIT if you really want property, tracker shares or bonds if not. Or i dont know enjoy it?

The keep till grave solution is exceptionally poor when thought out from a real life impact rather than just theoretical £s and pence. Even on pure economics it only works if you include those who will gain following your death.

 

[Pop321]

 

Ha indeed.

But lets say you are 65.. your sweating takes effort at a good time, a nightmare at a bad time.

Your sum of "sweating" till your reasonably expected death will not equal the gain after tax. You could then of course follow the sale by investment in something with less effort i.e a REIT if you really want property, tracker shares or bonds if not. Or i dont know enjoy it?

The keep till grave solution is exceptionally poor when thought out from a real life impact rather than just theoretical £s and pence. Even on pure economics it only works if you include those who will gain following your death.

 

Again I think that is what I am saying. Most landlords I know currently die with far too much tied up in property....they should have had it sold and spent 10 years before that. With these older LLs if they paid £30k for something now worth £500k I think I am starting to see why they haven’t sold. 

This will be a deterrent for new long term property moguls which is what we want....I am just not sure what will happen the to existing LLs who might have otherwise sold ie it might just be enough to discourage sales. I guess the reality is if they are leveraging they never had an exit plan anyway. 

[Will!]

 

I think that is what I am suggesting. Hold until the grave and sweat the asset.😉

In that case you could try entering the weird world of Trusts, which a few people might try if these possible CGT changes happen.