CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH
If the proposals were adopted in full, some Southampton
landlords would pay £10,500 less Capital Gains Tax than they would currently
The government borrowed £394bn in this financial year todate(April
‘20 to April ’21). This figure does not include the cost of the November
lockdown and support measures, which means the final bill will probably be over
half a trillion pounds. Ultimately, these billions will need to be paid
back to cover the cost of Coronavirus.
The Office of Tax Simplification (OTS) published a report for
tax reform and, as was predicted by many in the press, the Government Dept
suggested the Chancellor contemplate readjusting current Capital Gains Taxation
(CGT) rates to fall inline with a person’s own Income Tax rates. This would mean
increasing the rate of CGT for selling a buy to let property from 28% to 40%
for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to
the wound, the
OTS is suggesting cutting the £12,300 annual CGT allowance.
This has led to many Southampton buy to let
landlords contacting me in the last few weeks, wondering if this is the time to
exit the Southampton buy to let property market, especially as they have been
hit by growing levels of rental legislation and higher taxes.
With
tax bills about to go through the roof, is this the time to
leave
the Southampton buy to let property market?
Yet, like all
things, the devil is in the detail as Southampton 2nd homeowners and Southampton
landlords may well finish up having lower CGT tax bills with these new taxation
proposals, even though the CGT restructurings are being introduced to raise the
much-needed cash for the Government.
Apart from the
suggested cut of the annual CGT allowance and increase in the CGT percentage rates,
the OTS report also proposed reintroducing rebasing and indexation. In layman’s
terms, the OTS are suggesting all gains made before 2000 would not be
taxable (rebasing) and any capital gains would be calibrated to account for
inflation (indexation).
So, what
would that actually look like for a Southampton landlord? Let us assume we have
a Southampton landlord who bought a Southampton buy to let property in 2000.
Under the
current CGT rules
·
The average value of a Southampton property in 2000 was £109,300
·
Today, that same Southampton property has increased in value to £307,300
·
Meaning a profit / gain of £198,000
·
As our Southampton landlord is a high-rate taxpayer (earning
£60,000 a year), their CGT bill would, after the annual allowance, be £51,996
Under the new
proposed CGT rules
Under the new
proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual
allowance of £5,000) the same Southampton landlord would only pay £41,698 – a saving
of almost £10,500.
And the
savings don’t stop there. Remember, under the new OTS proposals, all capital
gains made before 2000 would also be tax-free.
However, let us not forget the responsibility of the
OTS is to report on tax simplification opportunities, not to set Government taxation
policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy
to let property or second homes. Although, as time has always taught us with
investments, often the worse thing to do is to make impulsive decisions on what
MAY happen.
You have to remember, CGT only gets charged when you
sell or transfer your investments, and most people use their rental investments
to provide them with income. If you did sell up, the best 90-day building society
accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck
with that) and Government 10-year bonds are paying a princely 0.324% pa...
where else are you going to invest to get the income Southampton property
investments provide?
Property is an asset you can touch, feel and
ultimately understand. Maybe, this is the time (if you haven’t already) to take
portfolio advice on your Southampton buy to let investments? Many Southampton
landlords do so, whether they use our agency, another Southampton agency or you
manage your property yourself. The service is free of charge, we don’t need to
meet face to face as we can do it over Zoom and it’s all without obligation. I
promise to tell you what you need to hear – not what you want to hear … what do
you have to lose?
If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.
If you are looking for an agent that is well established, professional and communicative, then contact me to find out how we can get the best out of your investment property.
Don't forget to visit the links below to view back dated deals and Southampton Property News.
Blog, http://southamptonproperty.blogspot.co.uk/
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Twitter, https://twitter.com/sotonbelvoir
LinkedIn, https://www.linkedin.com/in/brianlinehan
Website, https://www.belvoir.co.uk/offices/southampton
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