Budget News (annual)

[Miffy]

Wow! Taper relief abolished....

Good news about IHT allowances going up and adding together for couples. And a flat rate CGT of 18% will make things easier to work out when we sell...

But if I were to sell next year, I reckon I would be around 5k worse off due to the abolition of taper relief. (Perhaps that's just because my better half is a non tax payer at the moment, I don't know.)

I do think that such a big change to cgt should have been phased in over a longer term, though. It doesn't leave any sensible time for those who might be disadvantaged to sell up.

Anyone like to comment on the pros and cons of selling a long held property now to get the taper relief and buying a different one so the gain "resets" and personal cgt allowance is available on the future gains again? The property is worth around 140k and was bought for 53k 8 whole years ago.

[Grange]

You are complaining because tax rate has gone down from between 24 and 40% to 18%? I do not understand...


Sell next year: (140-53)*18% = 16k tax

Sell this year (140-53)*28?% = 24k tax.

(Ignoring annual exemption which will be the same(ish) for both.)

I think you'll find that the tax saving on the annual exempt amount so about 3k is more than cancelled out by the extra tax you will have to pay, plus SDLT, agents fees, lawyers fees etc.

[jghomer]

If you have built up maximum taper on a btl property and the tapered & cgt allowance adjusted profit when added to your other income does not push you into the high rate band, then you pay 22% tax on 60% of the profit.

This is MUCH better than paying a flat rate 18% on the total profit less CGT allowance under the new rules.

I planned to gradually dispose of properties until i retire, maximising the taper & cgt rules as they were, but this plan has been completely dashed under the new rules.

So i'm with you Miffy. It's quite a blow for me too.

[TaxationPete]

Here are three examples. Also note that indexation will be abolished as well.

If you were on 20K per year and owned a rental property from 06/98 to to 03/08 and reflected a gain of £200,000 then the numbers fall out like this:
Capital Gains Summary

Purchase Price £50,000 14/06/1998
Indexation 0.000 £50,000
Legal Fees £0
Sale Price £250,000 14/03/2008
Enhancements £0
Legal Fees £0
Gross Gain £200,000
PPR Relief £0 £200,000
Letting Relief £0 £200,000
Taper Relief 35% £130,000
CG Allow'ce 1 £9,200 £120,800
CG Bill £44,355

If you were a 40% tax payer then :

Capital Gains Summary

Purchase Price £50,000 14/06/1998
Indexation 0.000 £50,000
Legal Fees £0
Sale Price £250,000 14/03/2008
Enhancements £0
Legal Fees £0
Gross Gain £200,000
PPR Relief £0 £200,000
Letting Relief £0 £200,000
Taper Relief 35% £130,000
CG Allow'ce 1 £9,200 £120,800
CG Bill £48,320

However if you sold after 04/08 the numbers fall out like this:

Capital Gains Summary

Purchase Price £50,000 14/06/1998
Indexation 0.000 £50,000
Legal Fees £0
Sale Price £250,000 14/08/2008
Enhancements £0
Legal Fees £0
Gross Gain £200,000
PPR Relief £0 £200,000
Letting Relief £0 £200,000
Taper Relief 0% £200,000
CG Allow'ce 1 £9,200 £190,800
CG Bill £34,701

Just as an example.

Regards


Peter

[Miffy]

You are complaining because tax rate has gone down from between 24 and 40% to 18%? I do not understand...


Sell next year: (140-53)*18% = 16k tax

Sell this year (140-53)*28?% = 24k tax.

(Ignoring annual exemption which will be the same(ish) for both.)

I think you'll find that the tax saving on the annual exempt amount so about 3k is more than cancelled out by the extra tax you will have to pay, plus SDLT, agents fees, lawyers fees etc.

As jghomer says, you are missing the fact that not everyone is a 40% tax payer. As I said, my wife is a non tax payer. In my example, she would probably not pay 40% on ANY of her share of the gain due to the exemption etc. So her effective tax rate under taper relief after 8 years is 70% of 22%, or 15.4%. In a couple more years it would have been 60% of 20% = 12%!!!

18% doesn't look so good for her....

[halfax]

will we lose indexation and taper relief or will it stop for new properties form next year. the relief brown brought in 1997 was MEANT TO MAKE YOU HOLD ON TO ASSETS.

[Grange]

Taper relief and indexation are abolished. The annual exemption remains.

So a flat rate of 18% is applied to the purchase and enhancement costs. Admittedly thereare certain circumstances under which more tax may be payable, but in general this is much more generous than the taper regime for house investors.

The new rules strike me as bizarre and I for one should not be surprised if they are changed before they ever come in next April.

[TaxationPete]

The rumour that this this was only going to effect new purchases, was just that a rumour. The official wording in PBRN 17 clearly states that ' For disposals on or after 6 April 2008 indexation will no longer be available ' Similair wording in sectio section 8 Taper Relief. Regards Peter

[MM32]

Ok, I'm confused !

Do you still get exemption for 3 years if you have lived in the property? + is lettings relief is still available?

Are there any factsheets on this that actually make sense? i.e one that will help you plan for selling off your portfolio in the future?

[TaxationPete]

PPR and Letting relief are un-effected. Regards Peter

[Grange]

PwC say on their website:


In a video recorded a couple of weeks ago, John Whiting provided his view on the state of play on current business tax changes and what else to expect in the Budget: click here (4mins 28secs)

The following 'race card' also focuses on some of the more frequently 'touted' issues.

Increase in VAT or NIC to raise £4bn or so 20 - 1

Even if there is a bit of a gap in the public finances, an overt tax rise seems unlikely. Reversing any of last year's income tax changes is similarly a rank outsider.

Income tax thresholds rise in line with inflation 1 - 2 on

'Real' increases are unlikely so fiscal drag will bring more income into the higher tax bracket.

Tax and the environment measures 1 - 3 on

Something will happen; there are various possibilities:
formal study of 'pay as you throw' (domestic waste levy) options 2 - 1
tax relief for personal purchases of carbon offsets 10 - 1
lower VAT on low-energy light bulbs or other environmentally friendly products 5 - 1
further increase duty on petrol/diesel, with increased duty differentials for bio-fuels 3 - 1
incentives for green energy generation 2 - 1
Council tax/business rate reductions for carbon-neutral homes/offices 5 - 1
levy on plastic bags (in line with the Irish system) 50 - 1

It seems highly likely that we will have some ‘green’ measures – it is just a question of how many and whether there are signs of a clear policy statement (or the start of a debate) on how such taxes are going to fit into the fiscal framework.

Capital gains tax (CGT)

holding the line on the reforms announced in the October Pre-Budget Report (PBR) 1 - 2
some concessions to help the low paid who face significant CGT increases 10 - 1

Income shifting recast 3 - 1

A reasonable chance of seeing the income shifting proposals - widely regarded as impractical and burdensome - significantly recast.

Company car mileage rates reformed Evens

HM Revenue & Customs (HMRC) has been looking at this area and it is likely that the current scheme (40p per mile for the first 10,000 miles, 25p thereafter) will be recast to favour 'green' cars.

Excise duties on alcohol increase 1 - 2

A probable target for raising a bit more money with parallel talk of curbing ‘binge drinking’, but is this the right route?

The outsider 10,000 – 1

A clear and short Budget speech with nothing in the small print to worry about.

[jeffrey]

For live BBC feed, inc. video or text or both, see http://news.bbc.co.uk/1/hi/uk_politics/8403127.stm.

[Gordon999]

So threshold for charging SDLT returns to 125K ?

[jeffrey]

So threshold for charging SDLT returns to 125K ?
Yes (except in Disadvantage Areas, I guess, @ £150 000), as from 1 January 2010.

[tom999]

Key points for landlords:


The 'Stamp Duty Holiday' announced last year will not be extended beyond 2009.
The standard rate of VAT will return to 17.5% from 1 January 2010
A 'Boiler Scrappage' scheme, based on the car scrappage scheme, will be introduced to incentivise upgrading old inefficient domestic boilers.


Source: NLA

[jeffrey]

The 'Stamp Duty Holiday' announced last year will not be extended beyond 2009.
...as posted in #14 and #15 (but, as always, even NLA is sadly still unaware that Stamp Duty was abolished a decade ago- keep up, guys!)

[tom999]

Maybe you could also inform the BBC (http://news.bbc.co.uk/1/hi/uk_politics/8403636.stm), The Telegraph (http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/6785779/Pre-Budget-Report-theres-still-time-to-avoid-stamp-duty.html), The Times (http://business.timesonline.co.uk/tol/business/economics/pbr/article6950416.ece), The Guardian* (http://www.guardian.co.uk/uk/2009/dec/09/alistair-darling-pre-budget-report-full-text) and numerous other media channels of this observation.

In the Guardian* link above: "Alistair Darling's pre-budget report – full text", it mentions:
"By the time the stamp duty holiday finishes at the end of this month, I expect 240,000 homebuyers to have been helped."

"Stamp Duty (http://www.hmrc.gov.uk/sd/land/landtransfers-rates.htm)" may have been abolished, but it does not stop the term's use in the mainstream media or by politicians.

[jeffrey]

Yes. I did post a complaint on the BBC website but, sadly, it was ignored!

[mind the gap]

Yes. I did post a complaint on the BBC website but, sadly, it was ignored!
Scandalous. How could they? :)

[jeffrey]

Yes. I did post a complaint on the BBC website but, sadly, it was ignored!


Scandalous. How could they?
No, you missed the pun!
Try this: 'Yes. I did post a complaint on the BBC website but, SaDLy, iT was ignored'.

[Telometer]

It is incorrect to refer to Stamp Duty when you mean Stamp Duty Land Tax.

But when it's a holiday, is the contraction to stamp duty holiday really so unacceptable?

[jeffrey]

'Holiday' is also journalese, in this context.

[Telometer]

I suspect it is from the Treasury that "holiday" comes.