Treasury, Have They Done What I Think They Just Have?

[HousePriceLottery]

If the CGT 18% rule applies to property is this a really subtle way of stopping BTL's exiting the market until April (by which time an election may have been called)?

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

Call me a cynic, it's true

[ianbeale]

If the CGT 18% rule applies to property is this a really subtle way of stopping BTL's exiting the market until April (by which time an election may have been called)?

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

Call me a cynic, it's true

could be but we need neg hpi til april to bring on the flood - otherwise it could encourage btl

[Jason]

I don't think Brown could go against what he said about there being no election; he would just look stupid.

Even if this does stop a wave of properties coming to market. It may be to our advantage, as by April YoY HPI will be very low anyway (probably very near zero). So a rush after this would quickly push it YoY negative which is what's reported!

[ParticleMan]

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

It doesn't matter if they're offered for sale today, tomorrow, next April, or on the Twentingtonth of Avacado.

Nobody wants to spend their own capital on them. And few wish to lend theirs to others to do so, either.

But this will be a plausible-enough "reason" for some to proffer as a "cause".

Edited October 9, 2007 by ParticleMan

[Veritas]

If the CGT 18% rule applies to property is this a really subtle way of stopping BTL's exiting the market until April (by which time an election may have been called)?

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

Call me a cynic, it's true

If I had a BTL, I know for sure that in this market I wouldn't be waiting until April to put it up for sale .

With trends as they are, and the flood of recent bear news, I'd be down to the EA pronto. Even as I write, it might be too late .

Edited October 9, 2007 by Veritas

[Sledgehead]

If the CGT 18% rule applies to property is this a really subtle way of stopping BTL's exiting the market until April (by which time an election may have been called)?

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

Call me a cynic, it's true

Your thesis ignores a large number of btl properties held by those landlords who can legitimayely class their properties as business assets. For these players, the change in taxation will encourage them so sell up before the rules become effective. Currently such assets are taxed @ 10%.

Edited October 9, 2007 by Sledgehead

[BrownField]

Your thesis ignores a large number of btl properties held by those landlords who can legitimayely class their properties as business assets. For these players, the change in taxation will encourage them so sell up before the rules become effective. Currently such assets are taxed @ 10%.

This is a new one on me, my understanding was that all privately held assets such as investment properties attracted capital gains at 40% unless you lived in them at some point in which case taper relief was available depending on the length of occupancy.

How does this rule work?

Edited October 9, 2007 by BrownField

[Sledgehead]

This is a new one on me, my understanding was that all privately held assets such as investment properties attracted capital gains at 40% unless you lived in them at some point in which case taper relief was available depending on the length of occupancy.

How does this rule work?

So called business assets are taxed for capital gains purposes differently from non-business assets. Business assets need be held for only two years to achieve a 75% reduction in the chargeable gain. That means a high rate tax payer only pays 40% gct om 1/4 of their gains - ie an effective 10% tax on the total gain.

So what is a business asset? Propertywise, HMRC defines it thus:

ACG06025 - Capital: Property as a Business Asset

In cases where the applicant claims that a property is a business asset you need to consider :

is the applicant self-employed for tax credit purposes (i.e. is he carrying on a business)

is it reasonable that the property be deemed an asset of that business.

Example

The applicant buys a run down shop with the intention of renovating it before commencing to trade as a greengrocer.

He is deemed to be self- employed as he is working in expectation of remuneration (the future profits as a greengrocer) and the shop is a business asset.

Where the applicant claims that the nature of his business is the letting of the property you must consider the following:

The inclusion of the rental income in business accounts is not conclusive evidence that the applicant is self-employed or that the property is a business asset, which should be disregarded. (see DMG44072)

Receipt of rental income can, in certain circumstances be considered running a business where there is a high degree of management or administrative activity involved. E.g. the management of a block of flats or offices. In these circumstances the property would be an asset of that business.

Collecting rent and carrying out repairs on one small property does not constitute running a business, therefore the property is an investment which should be included as capital.

[South Lorne]

If the CGT 18% rule applies to property is this a really subtle way of stopping BTL's exiting the market until April (by which time an election may have been called)?

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

Call me a cynic, it's true

...I think by April many will be sitting on capital losses....and there are no tax rebates for these.....

[pimperne1]

I guess people are making light of the current situation but wouldn't a better scenario for HPC have been:

BTL landlords still having to pay up to 40% CGT on their profits after April (so no disincentive to selling immediately as there now may be).

The likelihood (as there was up until about a month ago) that interest rates would rise soon (in fact by now).

The then likelihood that the market would take a big drop NOW rather than hope for one in April when, to be honest, people are more likely to be considering buying properties.

In short, after the NR fiasco and the onset of Winter the triggers were in place for what could have been a realisation of the dream. Hold or drop in IR and then this CGT news which might see the housing market through the winter are not good news.

[roadtoruin]

If the CGT 18% rule applies to property is this a really subtle way of stopping BTL's exiting the market until April (by which time an election may have been called)?

Thereafter a flood of BTL sales ensues and brings the market down nice and sharp.

Call me a cynic, it's true

For BTLs of some years standing the drop to 18% - if they wait till April - will be offset by the loss of taper relief. Recent BTLers in high HPI areas might well gain by waiting till April as you say. BTLers in recent-ish purchase new-build flats facing impending crushing HPC on one hand and prospect of low 18% CGT if they hold out will be facing the crunch question: "How lucky do you feel ?" "40% tax or possible bust".

[pimperne1]

For BTLs of some years standing the drop to 18% - if they wait till April - will be offset by the loss of taper relief. Recent BTLers in high HPI areas might well gain by waiting till April as you say. BTLers in recent-ish purchase new-build flats facing impending crushing HPC on one hand and prospect of low 18% CGT if they hold out will be facing the crunch question: "How lucky do you feel ?" "40% tax or possible bust".

The only thing against them waiting until April to sell would be the potential of an HPC. Ironically one of the things that might significantly contribute to an HPC would be them not waiting until April.

Edited October 9, 2007 by pimperne1

[bleakhouse]

You're all assuming recent BTL's have a capital gain! You get £7500 allowance, double if you're a couple. I think many would be ecstatic to receive any gain, cos I think there people (especially if they have a void) who are in deep doodoo.

[Kurt Barlow]

You're all assuming recent BTL's have a capital gain! You get £7500 allowance, double if you're a couple. I think many would be ecstatic to receive any gain, cos I think there people (especially if they have a void) who are in deep doodoo.

Newbie (2004-2007) BTL's with 100% IO mortgages have nothing to fear from CGT!

[OnlyMe]

You're all assuming recent BTL's have a capital gain! You get £7500 allowance, double if you're a couple. I think many would be ecstatic to receive any gain, cos I think there people (especially if they have a void) who are in deep doodoo.

Bottom lines is this. From April there is no tax incentive (CGT wise anyway) to hold onto any in profit BTL (over CGT limits) property for one minute after the turn of the month. Leading up to April any long term property investors will actually be facing a situation where their tax liabilty will increase and stay increased ad infinitum, moreover if they are going to run for the exit this group will damn well want to do it before April comes with all the other sellers.

[joey]

Newbie (2004-2007) BTL's with 100% IO mortgages have nothing to fear from CGT!

I think its coming down to 90% to 95% the falls must be eating their 10% to 5% deposits though I am sure you can claim tax back on a loss as well. A slow death but an honorable one

[pimperne1]

Bottom lines is this. From April there is no tax incentive (CGT wise anyway) to hold onto any in profit BTL (over CGT limits) property for one minute after the turn of the month. Leading up to April any long term property investors will actually be facing a situation where their tax liabilty will increase and stay increased ad infinitum, moreover if they are going to run for the exit this group will damn well want to do it before April comes with all the other sellers.

So I take it from your post:

There is no tax incentive to hold onto any BTL profit after the change in the rules (not sure it is the turn of the month though)

Long Term Property investors (more than ten years then you must mean) will be facing a situation were tax liability will only increase (because of HPI I assume)

Notwithstanding the first point and Notunderstanding the second point the third point is

They are all going to run for the exit before April comes anyway.

Right....

[Kurt Barlow]

So I take it from your post:

There is no tax incentive to hold onto any BTL profit after the change in the rules (not sure it is the turn of the month though)

Long Term Property investors (more than ten years then you must mean) will be facing a situation were tax liability will only increase (because of HPI I assume)

Notwithstanding the first point and Notunderstanding the second point the third point is

They are all going to run for the exit before April comes anyway.

Right....

Looks like GB and AD are in for a CGT windfall. Tax cuts (election looming) all round funded by the BTL bailouts!

[pimperne1]

Newbie (2004-2007) BTL's with 100% IO mortgages have nothing to fear from CGT!

If they have been in BTL since 2004 has not the average house price increased by something like £40k since then?

[OnlyMe]

So I take it from your post:

There is no tax incentive to hold onto any BTL profit after the change in the rules (not sure it is the turn of the month though)

Long Term Property investors (more than ten years then you must mean) will be facing a situation were tax liability will only increase (because of HPI I assume)

Notwithstanding the first point and Notunderstanding the second point the third point is

They are all going to run for the exit before April comes anyway.

Right....

Quite right, one minute into the 5th of the month. ;-)

If somebody says I'm ini it for the long term they'd better be talking about long term income increases and long term real captial gains as CGT will play no part whatsoever.

A stampede fpr the exits is quite a possibility. It is what some city analysts are already expecting for the AIM market.

For both the stockmarket and the property market this CGT change is higly destabilising. Just NOT what this economy needs right now.

[Kurt Barlow]

If they have been in BTL since 2004 has not the average house price increased by something like £40k since then?

look on the bright side - they will cope for about £8000 CGT then!

[pimperne1]

Looks like GB and AD are in for a CGT windfall. Tax cuts (election looming) all round funded by the BTL bailouts!

You are quite correct (but not in the way I think you mean). From April very many BTL landlords ("investors") will consider leaving the market because it will become attractive to realise their capital appreciation (lets assume for a moment, dangerous I know, that there is no HPC). This will, I believe, release more money to the Treasury than the lower number of BTLers who would otherwise sell and pay up to 40% of their capital appreciation to the Treasury.

[Pindar]

On the other hand, it could be a political favour to all his buddies in parliament and elsewhere, who own second homes and wish to exit quickly before the market completely tanks it. Alternatively, it could be a vote retainer for the looming election. He wouldn't want to upset his middle-england voters by overtaxing them on their second homes as they rapidly exit the falling market. This could counter the recent tory policy announcement about inheritance tax.

[pimperne1]

look on the bright side - they will cope for about £8000 CGT then!

Did you mean they will pay about than £5.5k CGT?

[pimperne1]

Quite right, one minute into the 5th of the month. ;-)

If somebody says I'm ini it for the long term they'd better be talking about long term income increases and long term real captial gains as CGT will play no part whatsoever.

A stampede fpr the exits is quite a possibility. It is what some city analysts are already expecting for the AIM market.

For both the stockmarket and the property market this CGT change is higly destabilising. Just NOT what this economy needs right now.

Firstly, thanks yes the 6th is what I thought.

Secondly, exactly the opposite in fact - no need to be in BTL for the long term in future, if you are lucky enough to realise some HPI then you can walk away earlier with more.

Thirdly, a stampede for the exits is quite a possibility - but not really sensible considering the facts is it?

Fourthly, completely agree that it is not what the property market needed just now but we have it and there you are.