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Money talk: Capital gains tax |
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HOME >> NEWS >> Money talk: Capital gains tax |
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 Capital gains tax (CGT) has a nasty habit of creeping up on property investors, landing them with a hefty bill - but changes to this tax will see some people tens of thousands of pounds better off from April.
This tax is payable on sale of a buy-to-let property, and currently levied on a tiered basis - so the longer you hold the property, the smaller the tax bill. But a tax boost announced by the Chancellor in the Pre-Budget Report last year and finally confirmed last week will replace this system with a flat rate of 18 per cent on any profits.
This will benefit the majority of buy-to-let investors and simplify the current system. And anyone sitting on big gains and considering selling their property may be wise to wait until the spring to take advantage of the new rules.
Chas Roy-Chowdhury of the Association of Chartered Certified Accountants (ACCA), said: "From a tax perspective it is worth holding on to your property until the rule change takes effect in April - as it may mean you're a lot better off."
Take, for example, a property bought for £110,000 five years ago - around the average for the UK at that time, according to Halifax. If it is worth £200,000, a buy-to let investor would now face a potential CGT bill of £26,920.
his assumes they are a higher-rate taxpayer and use their £9,200 tax-free CGT allowance. If they wait, and sell following the rule change, their CGT bill would fall to £14,544, according to calculations from accountant Grant Thornton.
But waiting to sell may not be a wise move for all from a tax perspective, accountants stress.
Andrew Penman, of accountants Smith & Williamson, said: "Under current rules, people with furnished holiday lets and business premises let to traders pay CGT of just 10 per cent if they sell after two years.
"This rate will continue to apply to gains of up to £1 million on furnished holiday lets. But for business premises let to traders these lower rates will be replaced by the 18 per cent flat rate - an 80 per cent increase in the tax they pay.
"So anyone liable to lose the benefit of this lower rate may wish to accelerate a sale." There are other means for investors to lessen the burden of CGT, and maximise their profits.
If you own an investment property, using it as your main home - or principal private residence (PPR) - at some point before selling it could save you a substantial sum. The last three years' worth of growth will be free from CGT as well as the period in which you live there.
However, Ian Luder, of accountants Grant Thornton, says: "It has to be a proper occupation, and you need bank statements registered to that address, so a few weeks will normally not suffice - it has to be months."
Also, if any significant alterations have been made to the property while you have owned it, the cost of these can be taken off the gain as well. Minor refurbishments such as repainting walls do not count, but expansions or remodelling work do, and can reduce your core gain.
# Contacts National Landlords Association: www.landlords.org.uk; HM Revenue & Customs: www.hmrc.gov.uk; Self-assessment helpline: 0845 9000 444
Sharpen your wits and cut your capital gains bill
• Make a point of finding out what reliefs you are entitled to - these can wipe out a large part of the capital gain.
• Offset legal fees and stamp duty against any gains - along with selling costs such as estate agency fees.
• Live in the property for a few months so it can be classed as your principal private residence (PPR) - this takes a big slice off the tax bill.
• If any significant alterations have been made to the property while you have owned it, the cost of these can be taken off the gain as well.
Case study: Buy-to-let money-spinner
Catherine Campling, 30, a public relations consultant, bought a buy-to-let property six years ago in Southend-on-Sea, Essex.
The two-bedroom flat was bought for £69,000 and is now worth £140,000. She lived in the flat for five years until she moved in with her songwriter boyfriend, Matthew Cuthbert, 35.
She now has a buy-to-let mortgage through broker London & Country, and rents the property out for £650 a month.
Catherine, who is expecting her first baby, hopes to take advantage of the new CGT rules when she eventually sells.
She said: "I am not thinking about CGT at the moment because I want to keep the property for as long as possible - as an investment ticking along - so I can put it towards my pension.
"But the rate change will be good news if I need to sell at some point, as it would have a big impact, and I keep an eye on changes in the buy-to-let market." After her mortgage repayments and maintenance costs, she makes about £100 a month profit from renting the property.
Source: www.telegraph.co.uk |
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International Corporate Governance
This issue explores how governance attributes are directly related to the substantial variation - across both countries and companies - in ownership, investment and valuation. |
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