Not the time to sell and will CGT ever come back down?

Hi Chris,

It depends on the size of the potential CGT exposure and your circumstance. Please see our article under the Tax tab above >> http://www.property118.com/capital-gains-tax-relief-on-a-property-you-have-lived-in/

Mark was forced to emigrate to Malta for similar reasons. Please see >> http://www.property118.com/forced-to-become-a-tax-exile/77412/

As per the 2016 Budget:

Capital Gains Tax Reduced – from 28% to 20% for higher rate tax payers and from 18% to 10% for low rate tax payers from April 2016. However there will be an 8% surcharge on residential property leaving Landlords selling at the same old rate!

Waiting for a reduction in CGT could be a very long term strategy.

I am assuming that it's the management at a long distance that stops you from continuing to want to rent in the midlands and you want to release some equity.

Have you considered Rent 2 Rent with a new investor?

I have previously taken up the payments raised on second charges and I am waiting for inflation to allow me to complete the purchase, if I choose to buy in the next 8 years.

In the meantime, the properties cash flow nicely and I pay a rent to cover the payments with no voids.

If interested In how it worked in my case, just contact me via my profile.

I don't personally need any in your area, but I probably know about 10 investors that probably would.

I think it is unlikely that the specially preserved higher rate of CGT reserved for us nasty private landlords will come down any time soon.

If a Conservative government put it in, I cannot see a Labour one changing it and making things kinder for landlords!

What is also really galling is that for many years now there has been no indexation allowance (or taper), so effectively you are liable to pay tax on gains, a great deal of which will have been due to inflation over the time you have owned the asset. This applies, as far as I'm aware to all gains, not just second property / BTL related ones.
It is remarkable to us that so little is made of this gross unfairness in the financial press.

It is also galling that having hit landlords with the "tenant tax" and the SDLT "special tax" that Osborne also decided to single out property investing landlords further by keeping the CGT rate at the old level, thereby making sure more tax was raised for those who wanted out.

It's a toughie. Re your options, and the suggestion of Rent to Rent, please read my piece on "Rent to Rent".
It can work but there sure are risks with this - Google "LettingFocus + Rent to Rent" for more.
Do your research first and decide if the real risks of this are worth it.

Good luck!
David Lawrenson
David Lawrenson recently posted...Anti Corruption Summit and London Property

I wouldn't wait for CGT to come down. It is more likely to go up - it has been significantly higher in the past, and if Governments of all political persuasions continue to blame landlords for our national failure to build enough new houses, I can easily see CGT being increased.

You can reduce your CGT liability substantially by moving into one of your rental properties and establishing it as your own home before you sell it. This needs to be done "properly", with utility bills, council tax, GP records, electoral roll, bank statements etc, and evidence of occupancy and a reason for moving (e.g. downsizing, better location to visit children, etc). Once established as your Principal Private Residence, your CGT bill on sale will be based on the pro-rata split between years of occupancy and years of rental, plus the last 18 months of ownership count as "personal occupation" provided you have lived in the house at some point.

Example: you rent out the house for 7.5 years from the date of purchase. You move in for a year, then move out and resume letting the property for 18 months up to sale. When you sell after 10 years of ownership, 25% (1 year + 18 months) of your gain will be free of CGT because of the period of personal occupation.

The CGT can also be reduced by deducting purchase and sale costs (stamp duty, agents fees) and the cost of past capital improvements to the house which you haven't deducted from your rental income, e.g. a new roof. You also get an annual CGT allowance of around £11K, and Lettings Allowance of up to £40K.

You could then repeat the exercise for your second rental property, selling it in a new tax year to use up another year of your £11K CGT allowance.

You could also rent out your current personal home to replace the rent lost from the rental properties because you are living in them. This house will incur a CGT charge too on sale, but this will probably be small relative to the length of time you have lived in the property, and you can claim another package of annual CGT allowance and Lettings Relief too.

There is also scope to save money if you are married, through shared ownership or even outright tax-free gifting to your spouse. You would then both get an annual CGT allowance, and if your spouse is a low-earner, they will benefit from paying CGT at 18% as well as the higher-rate 28%.

Finally there is the option of arranging your affairs so that you earn very little in the year you sell. Capital gains are taxed at your highest marginal rate, so if you can keep your income below the personal allowance in the year you sell - perhaps by deferring a salary or pension to another tax year, or by taking a sabbatical, or leaving employment and starting a new business where you take no salary - then your whole basic-rate income band will be available, reducing your CGT charge to 18%, not 28%, on as much as possible of your capital gain.

So, if you are prepared to put up with the hassle of moving and establishing new PPRs, you could save a decent amount of tax, but of course this won't be for everyone. I suggest too you see an accountant to plan your strategy, and look at the excellent tax planning guides published by Tax Cafe.

Reply to the comment left by "Tony Atkins" at "17/05/2016 - 14:18":

That is a very good and succinct piece there Tony.
For more detail, I agree that Carl Bayley's book (from the Tax Cafe people) on how to reduce property tax is v good.
That book is very commended by me.
David Lawrenson recently posted...Anti Corruption Summit and London Property

Reply to the comment left by "David Lawrenson" at "17/05/2016 - 10:57":

Wow David, that's a generalization.

You have to get these agreements past the owners solicitor first.

Rent to rent is riskier in my opinion for the renter, not the owner.

They take over full management and repair and can have other property placed against them as security.

If I don't pay my bit, the agreement can be nullified after 14 days and the property never changed ownership in the first place.

Default and the owner has a house back.

Any capital appreciation can't be taken away until completion, but equity can be released by the owner if the parties agree.

They are also brilliant in negative equity situations.

Reply to the comment left by "Gary Dully" at "17/05/2016 - 15:24":

Thanks Gary,
Bit off topic now, but I wonder if you are talking about some sort of property lease option, not Rent to Rent?

As an aside you can get Private Residence Relief for the time that you lived in the property.

If you also moved back into the property then you can also get additional 4 years irrespective if you rented the property out or if it was left empty.

Certain other periods of absence from your dwelling house may be treated as periods of residence if:

during the period, you have no other dwelling house eligible for relief
both before and after the period there is a time when the dwelling house is your only or main residence
If you have another dwelling house eligible for relief, for example a house or flat which you bought or rented as your home while absent, you will need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house, see ‘Only or main residence’ above.

The qualifying periods of absence are:

a. absences for whatever reason, totalling not more than 3 years in all

b. absences during which you are in employment and all your duties are carried on outside the United Kingdom (UK)

c. absences totalling not more than 4 years when

Source: https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief#residence-provided-for-a-dependent-relative

With all this stuff about taxes ( Stamp Duty, Income tax, CGT and IHT ) it makes me wonder why most landlords are anti Pensions.

Nowadays, you get tax relief on the way in, tax free growth, and a tax free lump on the way out. You don't put all you eggs in one basket, . . . oh, and you can have the lot back now under the new rules as well, without having to wait for "chains", timewasters, parasitic lawyers, incompetent Estate Agents . . . et a! !

Also, you can pass them on with no IHT either . . . worth a look ?