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£24,000 - landlord’s average loss from Capital Gains Tax threat

A lettings agency has suggested that the typical landlord could lose as much as £24,000 if the government increases Capital Gains Tax as has been suggested.

Benham and Reeves says the figure would be typical for landlords to pay in extra CGT if recommendations by the Office of Tax Simplification to change the tax threshold are introduced.

CGT is tax paid on the profit of the sale of any additional home - a buy to let or a holiday cottage, for example - and currently the rate of tax stands at 18 per cent for basic rate taxpayers and 28 per cent for those in the higher rate threshold. There is an annual allowance of an initial £12,300 on which no CGT would be paid. 

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However, the Office of Tax Simplification has called for CGT to increase in line with income tax rates to 20 per cent at the basic rate and 40 per cent at the higher rate, while also lowering the initial amount exempt to just £2,000. 

There is widespread expectation that some reform of CGT - whether in accordance with the OTS or along other lines - will be made in a consultation document predicted to be released next Monday.

The research from Benham and Reeves shows that in the last decade, the average UK house price has increased from £168,703 to £251,500, meaning the capital gain of a buy to let investment during that time sits at £82,798.

Based on this example - and when removing the exempt sum of £12,300 - selling in the current market and with the current level of taxation would see a lower rate taxpayer pay £12,690 in CGT, while a higher rate taxpayer would pay £19,739.

However, should these changes come into play, the tax owed would climb to £14,100 for a basic tax rate payer, while those in the higher threshold would see it increase to £28,199; a jump of £8,460.

The agency warns that London’s landlords would be worst hit and based on property price appreciation in the last decade, a hike in CGT would see basic rate taxpayers paying nearly £4,000 more when they come to sell, climbing by a huge £23,810 for those at the higher tax rate threshold.

Those paying a higher rate of tax in the South East and East of England could also see the cost of CGT owed on their investment climb by more than five figures, increasing by £13,206 and £12,958 respectively.

You can’t reduce the percentage of tax owed on the capital gain of your investment, but you can minimise the sum. By taking into account costs incurred on the property, either when purchasing it or during ownership, you can boost the ‘initial cost’ of your investment and reduce the capital gain of any price appreciation.

Costs included in this respect range from legal fees, stamp duty and even mortgage broker fees when you purchase the property. To other costs such as the refurbishment of the property, the addition of more space via a conservatory, for example, and even the cost incurred defending the title of a home.

 

“The proposed changes from the Office of Tax Simplifications would act as nothing more than another nail in the coffin of the buy to let sector” warns Marc von Grundherr, director of Benham and Reeves.

“As it stands, landlords and second homeowners are already paying a substantial sum on their investment due to the increased value of bricks and mortar.  A further increase in capital gains rates is nothing more than a blatant attack on them, especially those in higher tax thresholds.

“The government seems intent on targeting landlords and second homeowners as the cause of the current housing crisis. The reality is, their failure to build enough homes is the driving cause and so perhaps this should be their area of focus.”

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    We only pay CGT if we sell , so don't sell, just keep taking that income.

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    £24'000.00 figure is a bad joke how many zero's are missing here, this is not research its clueless I am sorry to say. Hundreds of thousands and millions of Pounds are the true figures of this tax. Andrew dearest sooner or later you'll need to pass on all your tax paid lifetimes hard work to the family you reared, guess what it is likely they will take 40% / 45% Capital gains tax first, then take another 40% Inheritance Tax on the balance (remnants or Grave Yard Tax) at the Cemetery Gate.

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    Michael, when I'm dead and gone I won't be worrying about CGT or IHT, that will be my children's problem, but even after they have paid that tax they will still be in for a big free wedge of cash (or assets) that they didn't have to work for, so I cannot see them crying too loudly .

     
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    Very Little left unfortunately I am afraid. I know we'll all be Dead but we won't know that we are Dead, so what's all the hard work for ? we could be Retired and not care about anything but we do care. Looks like the people costing tax payer, £9 Billion in Housing Benefit got it right, the tip of the ice berg they are Kept, Fed, Clothed-ed, School Fees, Vouchers for food at home when not at school, Children Allowances, Nursery fees etc, and loved by Government. We are hated, despised, Criminalized & robbed, something big is going to happen this situation cannot continue to work indefinitely.

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    In many ways the benefit scroungers have got it right, but could you live like that ? I couldn't. By some we are hated, but so what, I hate the benefit scroungers, but I bet they don't care.

     
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    It's another tax and grab scheme by the gormlous, greedy government to rob hard working landlords and put tbem out of business in order to remove the competition for the Tory government's big build to let Tory party funders.

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    Its Simplification of tax Scheme for goodness sake, do you not understand if very simple they take all.

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    There are ways to reduce IHT liability. Trusts etc, when I get older I will look to pass on my portfolio gradually to my children. I will keep my self just at the threshold and play the game. I would rather be alive and see my kids take what I have started further than let the government have a penny more!

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    I put properties into my kids' names as soon as they were 18 and have kept our own net worth under £1 million to avoid IHT. I won't sell anything that I still own, so no CGT payable either.

    The £1 million being left by my wife and me will go straight to grandchildren and our own kids plan the same strategy as the grandchildren grow up and hopefully continue to grow their own net worths, with our inheritance as seed corn.

    IHT and CGT are both voluntary taxes, easily avoided by good planning.

     
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    Me too, work in progress, just takes time and with a fair wind sufficient will have been transferred to keep me and the missus just at the threshold

     
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    It seems I was only born to pay taxes, this tax planning is the bit I missed. I am envious of you but pleased for you at the same time, never understood why tax can’t be straight forward without jumping through hoops. We need to have an open mind about it as Gov’ have a nasty habit of moving the goal posts.

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    Things are never too late. Just seek help I am sure they're are many ways to be more efficient. I would always rather see my loved ones benefit. Personally I feel the old ways of you can have it when I am dead are outdated. Why not see the benefit you can do?

    Like Robert said you can retain 1 million between you and a spouse.

     
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