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

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

The government chooses to ignore the impact of inflation on the real value of money, property, and the cost of living. Prior to 2008, indexation allowance quite rightly, and sensibly, helped address this important issue.

I am 80 years old, a landlord since 1980, and still hands-on managing my rental properties as a builder, maintenance man, cleaner, agent, accountant, and in all other aspects of running a successful rental business.

Fortunately, we have no borrowings, and because we are very selective with tenants in Wales, we are profitable. However, this requires a great deal of effort, knowledge, and good business acumen.

Capital Gains Tax, along with Section 24, makes expanding a profitable rental business in 2024 virtually impossible. We want to invest and buy more properties, replacing some of our existing stock with more energy efficient homes to meet current requirements. However, current taxation and Government perception of landlords make this impossible.

We looked at several of our properties, starting with one owned since 1980. Purchased in poor condition for £26,500 with £250 in legal costs, it is now valued at around £350,000. For the purpose of simple calculation, we have ignored the tens of thousands spent over the years to maintain our property in good condition.

The property is let as three self-contained units generating around £27K annually. The building, about 110 years old, with high ceilings and three floors, has well-maintained flats but its old-style construction makes thermal improvements extremely expensive on such a large building.

Calculations for selling and replacing this with a modern building show a dire picture after considering the effect of inflation, hidden legal costs, and capital gains tax. We have ignored accounting for money spent over the last 44 years, selling at £350k shows an artificial gain of £323,250 after initial costs and fees. This gain totally ignores inflation and replacement costs for acquiring a similar replacement business at current prices.

After paying £77,580 in CGT @24%, we would be left with £271,670. Replacing this building with another at £350,000 would incur Land Transaction fees of £21,450 in Wales, plus solicitors’ costs and likely costs of repairs.

In real terms, we will have a shortfall of around £100,000 as a direct result of taxation.

This is the kiss of death to business. Achieving the current £27K rental income from a new building is impossible if we only have £271K left to purchase a new building and associated buying costs and Land Taxes.

This theme runs through our entire portfolio built up over forty years of hard work. Are successive governments incompetent, stupid, or just plain greedy and vindictive towards landlords who have provided homes that the government has failed to provide through its devolved departments for generations?

The current Government is claiming to support businesses and support tenants and housing. This appears far from substantiated by the current treatment of private landlords who provide a substantial proportion of tenanted housing in the U.K.

As landlords we need to scream and shout for common sense to return and lobby for ministers who understand business to speak up and knock a few empty heads together.

The current position for landlords running businesses providing homes for those who cannot afford to buy, is simply legalised robbery, making it impossible for us to run and develop a business providing the homes that Government simply cannot afford and will not be able to provide.

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