Wednesday, October 10, 2007

Government Props Up Owners Of Multiple Homes

Pre-Budget: The winners and losers

A short article which demonstrates my belief that the Government will prop up the housing market AT ANY COST. Labour fears the loss of the "feel-good" factor, something which adversely affected John Major's Government. See the comment "• Second home owners: they will pay lower rates of tax (18 per cent) on the profits from selling their second homes."So our BTL-ers are getting another break if they sell their portfolio.

Posted by talking rot @ 07:54 AM (1213 views)
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14 thoughts on “Government Props Up Owners Of Multiple Homes

  • Yes, I think you’re right. But they won’t be able to do do anything except perhaps postpone things for a tiny bit longer at the expense of making the final crunch much worse. It’s all happened before, starting with the South Sea Bubble (which was nothing to do with South Seas and everything to do with the Bank of England, greedy Bankers the Government and a fundamental misunderstanding of the true nature of money by all concerned). (Sorry to mention it again)

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  • This cannot be true!!!!! How can this possibly be justified???
    We should get a petition together.

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  • The new capital gains tax rules may be good news for second home owners and BTLers, but they will do nothing to prop up the housing market – they could even have the opposite effect — there is now more incentive for them to sell up and bail out now before prices drop.

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  • That could work both ways. I can imagine the crash being postponed as BTLers hold on to their portfolio in anticipation of the tax break – but as with all things related to this bubble they only serve to further inflate, or delay the pop. When the tax break comes in I can see a flood of property coming on to the market.

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  • Unless I’m being totally dumb here…

    Under the old rules, if you held an asset for a good long period of time, indexation and taper relief reduced the amount of CGT you had to pay – in other words, there was an incentive to hold things like BTL properties for a number of years so as to pay less tax. “Flippers”, on the other hand, were looking at 40% CGT.

    This new CGT comes in from next April. Therefore, if you have already held a BTL property for a number of years and were expecting to pay little CGT as a result, you will now face a bigger tax bill if you wait until next April to sell. “Flippers”, on the other hand, will be able to make more profits after April.

    So, there is now an incentive for loads of BTLs who’ve owned for a while to dump their properties before April. And because they’ve owned for a while and so bought when prices were much lower, they won’t mind knocking a few thousand off the price in order to get the sale through quick because they’re still going to be quids-in. The fact that flipping properties will be more appealing, from a tax point of view, when next April arrives will be a moot point, becuase you can’t flip in a falling market anyway.

    This will hasten the crash – so my thanks to Darling even though this probably wasn’t his intention! 🙂

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  • Spot on dugmug. BTLs who were expecting to take advantage of taper relief on sales PROFIT will now pay the new flat rate of 18% after April 08.

    They key word here is PROFIT, something which the paint job, new cheap kitchen flipper brigade won’t be seeing anymore, so they won’t
    benefit !

    IMO, the informed taper relief BTLs have been quietly liquidating over the last few months, ever since the attention on Private Equity was a warning that CGT would change.

    Will this lead to a rush to the exit ? Not looking so “long term” any more is it.

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  • Update: I’ve just checked out the current Capital Gains Tax guidance and read the relevant part of Darlings full pre-budget announcement yesterday, just to see if I was being dumb and good news is that I wasn’t!

    Taper relief and indexation allowance will indeed end from 6th April 2008.

    Currently, taper relief on business assets means that you only have to pay tax on 25% of you capital gain if you have held the asset for 2 years or more. i.e. you sell your BTL for a £100k profit, but you’ve had it more than two years so you only pay 40% tax on 25% of that gain, i.e. £25k times 40% = £10k CGT.

    For properties purchased before 1998, indexation relief may also apply. This means any gain in value pre-1998 can be adjusted down for inflation before CGT is applied, further reducing the tax bill.

    From next April, the CGT rate drops from 40% to 18%, but taper and indexation relief goes too. So now you’d have to pay 18% of the whole £100k profit = £18k CGT.

    This change reduces the incentive to hold BTL properties “for the long-term” as there will be no difference in the CGT rate due whether you hold the property for one year or for ten years. This also therefore reduces the long-term profitability BTL – those expecting lower CGT bills when they sold up in ten years time will now have to revise their tax figures up and so their profits down.

    In a market that is currently looking flat, and with an increase in your CGT bill due if you wait until after next April to sell, any BTL with properties they’ve owned for 2 years or more will surely be tempted to forget their “I’m in it for the long-term” strategy. Bye-bye-BTL.

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  • I thought BTL ers and holiday lets could completely get out of paying CGT by using the available loopholes : If you rent out a property you’ve previously lived in, you get letting relief of £40,000 off any CGT you might pay. Because you’ve previously lived in the property, (minimum of 6 months council tax in your name as proof), you also attract a further 36 months worth of CGT relief. The 36 months rule takes any capital gains and divides it evenly between the number of years you’ve owned the property. No wonder BTL are thriving with the income tax relief plus you have a personal CGT allowance of £9200. I got this information form the following link :

    http://www.thisismoney.co.uk/mortgages/article.html?in_article_id=410130&in_page_id=8

    Can anyone tell me if I’ve got this wrong?, as it seems too good to be true, but also explains why there’s a hell of a lot of smug amateur landlords out there.

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  • realist75…the article you refer to is interesting.

    However, I’d say that it’s not people with the odd BTL property that they used to live in that have caused the big problems with HPI in the market – someone moving from a property to live with a partner is not actually doing any buying or selling and so not creating HPI. It’s the ones buying up 10, 20, even 100 strong BTL “portfolios” that have doen the real damage, and I think even the most devious person will struggle to “prove” to the tax man that they’ve used 100 different houses as their main home in just the last 3 years. It’s also the landlords with loads of properties that will help bring the market down, because for each one that decides to liquidate that’s loads of extra properties suddenly on the market.

    Finally, this “letting relief” is not something I’d heard of before and wasn’t in the CGT documents I looked up earlier, nor menbtioned in Darling’s pre-budget. I wonder if it will still apply post April 2008??

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  • David Smith's Sub Prime. . . says:

    Looks as if Crashes mates haven’t got rid of all their property portfolio yet.

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  • Good points Dugmug. I totally agree that it’s the people with significant ‘portfolios’ who’ve tipped the balance, but I also think the increase in ordinary folk renting out their home and mewing to buy another, is playing a part in HPI. I’ve got loads of friends who’ve jumped on the bandwagon in recent years. They’re all claiming they won’t pay CGT, and it doesn’t really seem fair that the extra demand makes it a lot harder for 1st time buyers, who simply want their own home. 4 years ago, I didn’t know any ordinary people doing BTL. Now I know loads of people. Also, I don’t think we should forget that people with ‘portfolios’ started with only 1 or 2 properties. Then they go on to buy more and more when they see how easy it is to make the money. So people get addicted to it and don’t just stop at a couple of properties. It’s really interesting to watch friends who are now being cautious as they know something’s up, and those who really think it can just keep going and going……

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  • The otherl point I’d like to make is that the people I know doing BTL’s aren’t buying up the stupid luxury developer flats that no one wants, they’re buying, (and subsequently ramping up the demand), for good quality victorian/edwardian flats and houses that 1st time buyers actually want to live in. They’re calling it their pension because it makes it sound ok and more respectable. They know that ‘really’ they’re jumping on the bandwagon because they’re being greedy. They’ve seen how much houses have gone up in value, how easy it is to mew which puts you at an instant advantage over a first time buyer, and that they can make an easy killing.

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  • realist75 I agree. I know a lot of people who have “MEW’d up the ladder” and kept their old flat/house to rent out. This reduces
    supply and deprives people of buying, which plays a less than insignificant part in inflating prices.

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  • Could we be looking at this the wrong way? The government know that property market is heading south and there is nothing they can do to keep it afloat.The monster is just to big now. There are alot of people with second homes and BTL more than 2 years old who will be looking to sell and take a sizable profit now the market has turned.

    Increasing the tax take on these people will generate a large income for the treasury. Most people will not feel sorry for these people being taxed more as they have done so well from HPI. The headline figure looks good to most sheeple as somw will see it as taking less tax rather than more.”We are encouraging investment” Spin spin spin.

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