The 54.4% property wealth tax no one talks about?

Yes you are right and this scenario is horrendous. We will have to wait and see what happens. I hope someone is lobbying on this!
The abolition of uplift on death may be crippling for landlords who have purchased many years ago.
I asked bard about it recently and this is the answer I got.

Here's the breakdown of the potential capital gains tax (CGT) implications for your investment property under the three scenarios, assuming the legislation comes into effect before your death:
1. Prospective Application:
In this case, the uplift on death would still apply because your death would occur after the legislation is introduced but the rule wouldn't be active yet.
* Gain: The gain for CGT purposes would be calculated using the uplift on death. This means the property's value on the date of death (e.g., £550,000) would be used as the base cost.
* CGT Calculation: Gain = Selling Price (Market Value) - Uplifted Base Cost (Market Value on Date of Death) = £550,000 - £550,000 = £0
Therefore, under a prospective application, there would be no capital gain for CGT purposes.
2. Retrospective Application with a Grandfather Clause:
Here, the outcome depends on the specific details of the grandfather clause.
* Scenario A: Grandfather Clause excludes properties acquired before a specific date (e.g., December 31, 2020):
* Since your property was purchased in 2000 (before the cut-off date), you would still benefit from the uplift.
* The CGT calculation would be the same as in scenario 1, resulting in no capital gain.
* Scenario B: Grandfather Clause excludes properties owned for a certain period (e.g., 10 years or more):
* Your property qualifies (owned for more than 24 years), so the uplift would still apply.
* Same CGT calculation as scenario 1, leading to no capital gain.
3. Fully Retrospective Application (Unlikely):
This scenario is highly improbable due to fairness concerns. However, for illustration purposes:
* The uplift wouldn't apply, and the base cost would be the original purchase price (£150,000).
* CGT Calculation: Gain = Selling Price - Original Cost = £550,000 - £150,000 = £400,000
In this unlikely scenario, you would incur a significant capital gain of £400,000, potentially leading to a high CGT liability.
Important Note:
This is a simplified example to illustrate the concept. Realistically, factors like property valuation at the date of death and any exemptions or allowances might affect the final CGT calculation. It's recommended to consult with a tax professional for a more precise assessment based on the specific details of the legislation and your circumstances.

Reply to the comment left by Hugh Baily at 23/09/2024 - 11:15Gosh, thank you, Hugh! I hadn't even thought about the implications of factoring in the possible abolition of uplift on death.
It seems that the older you are (we are in our 70s) the scope to avoid falling into this particular tax trap reduces.

My father (89) has fallen into this tax trap. In 1975 he bought a second home on the shores of Chichester Harbour for £20,000. The house is now worth ~£450,000 so a gain of £430,000.

My mother (87) has had a stroke and is no longer keen to travel, so dad would very much like to either give the house to me and my three brothers, or sell it. In either case CGT would have to be paid, either on the sale (less £20,000) or on the current value (less £20,000) if he and mum were then to die within seven years IHT would have to be paid (at a reduced rate between 3 and 7 years after the house’s disposal).

So he is left with a house rarely used until he dies to avoid double tax.

I am.not sure incorporation into a limited company would save.

This is because the company pays corporation tax on annual profits. The owner pays CGT tax on the sale of the company. Not sure the rates and money could be spent on other company activity but would be interested to understand the true benefits of incorporation and when it may be a better option than self ownership?

Tom….I think CGT will have to be paid if sold during your fathers lifetime.However under the current rules when your father dies it could be sold CGT free and put into his estate and IHT paid over the 325000 allowance at 40%. The worry is the forthcoming budget may demand his estate pays CGT on the increase in value then pay IHT at 40%. This in effect would retrospectively tax gains over the past 50 years which were tax free which is absolutely scandalous but I fear not above this governments moral compass.

Paul….I think transfer of a property into a limited company would be a disposal so CGT would have to be paid immediately. Incorporation depends on your circumstance and it may well be worth getting professional advice on this. If you are young and building a portfolio then it could be of interest.

Tom expressed this tax trap perfectly and it may indeed affect more second home owners than landlords. The issue gets more acute as you get older - if I were still in my forties or fifties I’d have sold up by now and taken the 24% CGT hit in the hope that I could manage the released equity in a way that would mitigate future IHT implications. But the older you get the incentive to keep properties until death increases so that your heirs are spared the CGT hit.

Rachel Reeves is an economist and may be anticipating that increasing CGT rates will result in a decrease in overall CGT tax take, which leads us on to the concern Hugh has raised: the even worse scenario if the uplift on death is abolished.

When I also take into account the other taxes I pay as a landlord: the egregious SDLT on further property purchases; VAT on goods and services for property maintenance; etc. and, finally, income tax on the little that remains, it feels like I'm just working for the Government...except that I have all the tenant-related hassle and legal and financial risks that come with being a landlord and no benefits such as sick or holiday pay!

Reply to the comment left by Steve Hards at 24/09/2024 - 12:59
But don’t forget the benefits of being a landlord too.

Consider this scenario.

£300,000 in the bank.

Buy a flat for £300,000 with a 5% yield: £1250pm; £15,000 per annum.

Mortgage the flat for £180,000 @ 4.5% 5Yr fix (Barclays has this offer for up to 65% LTV). Put the £180,000 into a stocks and shares investment - over the past 50 years US stocks and shares have averaged 9.5%.

£17,100 capital gain per annum. Less £8,100 mortgage payments gives £9,000.

Add in house price growth of 2% - £6000.

Total £30,000 or 10%

And on that £30,000 you pay less tax than a teacher earning £30,000 and little or no national insurance and the government gives you a tax credit on your mortgage interest payments.

Ok - so you might have some hassle with tenants, but the teacher gets a whole lot worse from 30 hormone bursting teenagers!

But don't forget the additiional costs of stamp duty North of £11k, buying fees of thousands, void periods of thousands and forget stock market growth at 9% most don't see anything like that.

If 9% were achievable people would do that in preference.

Reply to the comment left by Paul Smith at 26/09/2024 - 05:10
Yes, Paul, and the cost of landlord's insurance, HMO or selective licencing fees, etc., etc...

Of course my original post wasn't about the economics of being a landlord but about the existing disincentive to stay invested as you get older. And it sounds like it is going to get worse.

Although we are by no means amongst the 'super-rich' who seem to be rushing to leave the country, we do have the option of selling up and becoming resident abroad - my wife is Spanish. But it's the draw of being with our young grandchildren (to whom we were hoping to have some wealth to pass on) that keeps us here. I'm beginning now to consider that the CGT and IHT combination is a 'Grandchild Tax'!

Tom. Remember the reduced IHT rate you mention would only apply if your parents made lifetime gifts that completely covered the 325000 IHT allowance.In this case HMRC would come to you for payment at the rates you speak of. If the allowances are intact at death then HMRC will write back the gift into the deceaseds estate and tax accordingly at 40% , right up to the cut off at seven years.
There have some interesting comments about your calculations regarding the worth of being a landlord. Repairs can run up to 20% of income, l wonder if you were talking about gross or net yields?
Your original point about CGT and your parents second home may not be so unfair if you consider what a fantastic passive investment it has been. In contrast Landlording is a business and is not without work and risk!
On the point of incorporation, it is possible that S24 may also be applied to Limited companies in the forthcoming budget so hang fire on incorporation! This is a hot topic to with HMRC at the moment!