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zoomraker

Would Someone Kindly Explain Why The Changes To Cgt Favour Buy To Let

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18% should apply to all disposals.

The distinction between business assets and non business assets is being withdrawn.

Currently the lowest rate of CGT is 10% and this applies to business assets that have been owned for a certain period of time. The lowest rate for non business assets is higher than this.

You are right in stating that BTL'ers may have trouble in claiming that their flats are business assets but this will not apply from next April as there is only one rate of tax regardless on what type of asset it is and how long you have owned it for.

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LLs will pay less of it when they sell. Its not hard!

Not true. Some LLs will pay more because of loss of taper relief.

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Not true. Some LLs will pay more because of loss of taper relief.

So this could make a crash more likely as LLs who have entered the market recently will have a greater incentive to sell and would be able to accept less as they are not going to lose 40% of any profit they may have.

Could help get the ball rolling.

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More specifically, it favours speculators over investors. This is why both the CBI and the Unions and everyone else apart from idiots like Rosie Dullard are annoyed.

Example under current tax regime:

Flipper buys flat, leaves empty sells for profit 12 months later

= 40% CGT on profits

Businessperson starts business, builds up profitable concern though hard graft, sells to larger competitor a few years later

= 10% CGT

The same example under from next April:

Flipper buys flat, leaves empty sells for profit 12 months later

= 18% CGT on profits

Businessperson starts business, builds up profitable concern though hard graft, sells to larger competitor a few years later

= 18% CGT

So there you see, hard work - penalised, speculation - rewarded.

Thank you, Darling!

Edited by Bear Goggles

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More specifically, it favours speculators over investors. This is why both the CBI and the Unions and everyone else apart from idiots like Rosie Dullard are annoyed.

Example under current tax regime:

Flipper buys flat, leaves empty sells for profit 12 months later

= 40% CGT on profits

Businessperson starts business, builds up profitable concern though hard graft, sells to larger competitor a few years later

= 10% CGT

The same example under from next April:

Flipper buys flat, leaves empty sells for profit 12 months later

= 18% CGT on profits

Businessperson starts business, builds up profitable concern though hard graft, sells to larger competitor a few years later

= 18% CGT

So there you see, hard work - penalised, speculation - rewarded.

Thank you, Darling!

Good post.

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I have heard that not all BLTs will have the benefit of calling their rental property a business and therefore will not get the 18% CGT. Clarity is needed guys. :unsure:

You have this arsy-tarsy. Under the current regime (ie prior to the changes), those who can prove their lets constitute a bonafide business, are able to class their porfolio as a "business asset" (zoomraker needs to look this up if he/she wants to write a letter). Currently, business assets attract only 10% cgt if held for 2 years or more. Post 6th April 08, ALL assets attract cgt of 18%. This means that portfolios large and complex enough to be classed as a business, will find themselves subject to 18% tax rather than 10% tax. There is thus an insentive for such portfolios to liquidate assets (that have seen capital gains) prior to the rule changes that occur on April 6th 08.

Smaller portfolios that could not qualify as business assets will see their cgt bill reduced for all but lower rate tax payers with accummulated taper relief.

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This is very interesting.

It seems the changes are not as simple as they first appear and it is hard to predict what their effects on the housing market will be.

If their is a crash I could see this as being one of the things which gets the blame pinned on it.

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To clarify, the 10% CGT due is as a result of 75% Business Asset Taper Relief (BATR) after 2 years = 25% (taxable) @ 40% (max tax rate) = 10%.

There are actually 3 CGT tax rates for 2007-08: 10%, 20% and 40%.

CGT on small taxable gains could be as low as 2.5% (25% @10%) up to £2230 or 5% (25% @ 20%) up to £34,600. This is per owner, so can be double for a Married Couple or Civil Partners.

Most (99.99%) BTLers will not get BATR.

Edited by Warwick

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