Capital Gains Tax – Inflation, the real problem ignored by Government?

I have been complaining about this Fraud sponsoed by Alistair Darling since its inception.

Three points to consider..

1) If you want to buy new properties then do so under a LTD company. This is not subject to CGT at disposal just "profit" and inflation is a factor when calculating (however that remains frozen at 2018 for now)

2) If you buy a property with a mortgage then this has the opposite effect. The loan shrinks with inflation, so depending on how you are geared this could be benefitable offset when compared to CGT that don't include inflation.

3) Just don't sell re-mortgage to pull out the equity which isn't subject to CGT tax. Will the property to your successors as willed CGT is lost upon death so whoever inherits the "gain" will start from when they inherent. The cash you have taken out might not even be subject in inheritance tax.

Sounds too like you need a tax/estate planner.

totally agree
not very clever people running the show it would appear .
you could not have made it more simplistic than that

i wonder what it would look like factoring in the tax paid on rental received , profits , and vat on all repairs etc - i would guess that might double your tax calculation !

CGT is a huge problem for long term landlords. Some of my longer owned properties would be close to £100K per property in CGT should I sell them. That's effectively the theft of 2 bedrooms per property.
When I bought them in the 1990s and early 2000s there was a completely different CGT regime which encouraged long term ownership but recognised even landlords may want to retire one day. That was changed and as far as I am concerned I have a choice of either selling and being robbed of numerous bedrooms worth of investment or not selling and being robbed of a retirement.

Either taper relief or indexation relief would be a game changer. If we don't sell the government gets nothing. If we do sell they get loads of SDLT and VAT plus some CGT.

Whether it’s right or wrong there is absolutely zero chance of structural change in the treatment of residential letting compared to ‘trading’ businesses. It’s not just CGT treatment (ie no rollover relief) but also rental income does not qualify as relevant earnings for pension contribution. However there would be a downside for most landlords in treating rental income as ‘self employed’ earnings and their properties as normal business assets - NI would be due.

When I became a residential landlord in 1990, I had considered at length whether to go down that route as my capital was from a trading business that I sold at a profit with a CGT liability of around £10k. I wanted a property related venture but decided against commercial property or holiday letting which would have allowed the gain to be rolled over. I paid the CGT which IIRC was basically at 40% as Lawson had aligned it with higher rate tax - less some indexation for the relatively short period of 4 years I had owned the business.

I take my hat off to anyone at age 80 still looking to stay in the PRS. I built up a portfolio of 14 properties with leverage. The CGT has changed a bit over the years (Brown acknowledged the time an asset was held with his taper relief which was subsequently scrapped - the main problem now is long term property gains are demonised in the same way hedge fund types can launder what is basically annual income as capital gains).

For me the writing was on the wall back in 2015 with Osborne’s antics, especially Section 24, and I have sold off down to 1 property I keep more as a favour to the great long term tenants. This last property is also my first rental purchase - owned for 34 years. I will not re-let if the tenants leave - and if the CGT after 30th October is too unfavourable I will seriously consider boarding it up until some sense and balance return to the PRS and it’s tax treatment.

One thing that I always feared that never came to pass whilst I derived my entire income from property was an Investment Income Surcharge - at 15% in the 1970s giving a marginal rate of 98% for those in the 83% top tax band. I also saved many thousands by having a good income not subject to NI for twenty years.

The good years for smaller landlords were post 1988 Housing Act to 2015 and Osbornes wrecking ball - carried on by Gove and now Rayner, Milliband and Pennycook.

I agree wholeheartedly with the sentiment of our guest author. I wish that screaming and shouting for common sense would do some good. However, I believe there are many in the Labour Party and many civil servants who think that landlords screaming is a good thing and that inflicting pain on landlords must always help tenants.
One definition of stupidity is doing something that is against your own interest but believing the opposite. Getting drunk will not improve your driving. Attacking and penalising those who provide housing will not help tackle the homelessness problem. Politicians have been told this for years. Sad to say, instead of pausing and asking if years of anti-landlord legislation has made things better or worse for tenants, they are now doubling down on their stupidity.

Reply to the comment left by Ian Narbeth at 16/10/2024 - 11:01
Their stupidity is mind-boggling!

Reply to the comment left by Ian Narbeth at 16/10/2024 - 11:01Totally agree! If any of them had a brain, they would be (seriously) dangerous.

Reply to the comment left by Keith Wellburn at 16/10/2024 - 10:42Don't be so sure that NI contributions won't be due on property income to suit itself. In the same way that they don't allow mortgage interest relief they could easily charge NI contributions.
A prime example how the government twist the rules to suit itself is how it differentiates between income and capital gains:
When working out whether you pay CGT at the lower or higher rate it does not just look at your income, IT ALSO COUNTS YOUR CAPITAL GAIN AS INCOME, adds it to your existing income and if that new figure exceeds £50,340 you pay at least some of your CGT at the higher rate.
But lets say after having paid the CGT bill you want to give that money away as it is surplus to your needs. NO, YOU

Government can change rules. It can count capital gains as income to decide what rate of CGT you pay BUT f you want to give away the proceeds of a capital gain to family as it is surplus money to your normal living expenses then it becomes capital again and not surplus income and you must live for 7 years to completely avoid inheritance tax