Can someone please clarify this re CGT?

[DimPrawn]

http://www.guardian.co.uk/business/2...market.renting

"A combination of tightening lending criteria and successive interest rate rises has started to hit the buy-to-let market, but with the drop in capital gains tax due in April, many landlords are resisting selling until spring," said Rics spokesman Jeremy Leaf.

My understanding was that effectively CGT is almost doubling after April, due to the removal of taper relief?

i.e. Old system 40% but with 75% reduction with taper relief leading to 10% tax

New system flat rate of 18%

What are these people talking about, waiting until after April?

Have they only held the BTL for 5 minutes?

[Sockpuppet]

Have they only held the BTL for 5 minutes?

Yes. I suspect they are mostly running Ltds set up in the last 2 years.

[ratewhore]

I did read more detail elsewhere but for now I found this:

Capital Gain? Tax change means most BTL investors will be winners
19th October 2007

By David Lawrenson

The net result of the Chancellor's changes are that most buy to let investors are big beneficiaries as they will see their CGT tax rate fall to 18%. Previously, the lowest it could go was 24%.

So, for most people it's time to open the champagne.
But what about the details and what does the cange mean for UK BTL investors?

A few weeks ago the Institute of Directors (IOD) joined forces with some on the left to say that landlords should not be allowed to offset interest on mortgage and other loan payments against rent when calculating their buy to let profits.

According to the IOD it gave landlords an unfair tax advantage and stopped us all putting our money into "proper business" that makes things and sells services.

[Lockhouse]

Myco ownes my BTL (bought 7 years ago) and I'm selling now and folding after April to take advantage of the 18% CGT rate. I would expect other people with corporate property are doing the same as property doesn't qualify for taper relief.

[hugebrain]

My understanding was that effectively CGT is almost doubling after April, due to the removal of taper relief?

i.e. Old system 40% but with 75% reduction with taper relief leading to 10% tax

New system flat rate of 18%

What are these people talking about, waiting until after April?

Have they only held the BTL for 5 minutes?

Under the old system, normal companies paid 10% (since they had already paid around 40% tax on everything they made, and lost money through inflation.

Buy-to-let paid a higher rate (25%?) since they had already received 40% tax relief on their interest payments and made lots of money through inflation (on their borrowings). Had to have had the houses for a long time to get this.

In a bizarre move to enrich passive earners at the expense of workers this is being changed to a flat 18% on both.

Now, I'm wondering if there's a money-for-nothing scheme in there somewhere since you get 40% tax relief on the rent but only pay 18% in capital gains (maybe I should ask on the accounting board). See you at the house auction when I've worked out the details.

[tim123]

Under the old system, normal companies paid 10% (since they had already paid around 40% tax on everything they made, and lost money through inflation.

Buy-to-let paid a higher rate (25%?) since they had already received 40% tax relief on their interest payments and made lots of money through inflation (on their borrowings). Had to have had the houses for a long time to get this.

It's got nothing to do with the above.

Business taper relief takes the CGT down to 10% after 2 years of ownership. If sold in the first year of ownership the tax is 40%, but no-one sells on that quickly if they have a choice and in the second year it is 20%.

But BTL is not a recognised as a business (you may disagree with this decicision, but that's how it is), so personal taper relief applys. This means that the tax is 40% if sold in years 1, 2 or 3, 38% in year 4, ... down to 24% in year 11. Most BTL'ers have only been in 2-4 years so are going to see a maximum discount of 2%.

tim

[hugebrain]

It's got nothing to do with the above.

Sounds like I was right except for being 1% off on the old CGT rate for long-term BTL?

Please let me know if there's something else wrong before I shut down my ltd. and plough the money into a BTL tax haven.

[tim123]

Sounds like I was right except for being 1% off on the old CGT rate for long-term BTL?

Please let me know if there's something else wrong before I shut down my ltd. and plough the money into a BTL tax haven.

No, you said that it had something to do with businesses paying 40% tax already elsewhere whilst individuals didn't.

It has nothing to do with that.



tim

[AtW]

There is a very small, next to zero chance that this wrong new policy will be reversed - idiot Brown screwed up one of a few good things he did

[hugebrain]

No, you said that it had something to do with businesses paying 40% tax already elsewhere whilst individuals didn't.

It has nothing to do with that.

tim

So why was it?

I thought it was because taper relief wasn't (as) necessary for BTL, since they got tax relief on interest payments already and inflation helped them by paying off their loans.

More importantly, can I get free money from BTL through the new tax loophole?