Tax & Accounting News

Tax Changes Set to Benefit Property Investors, Say Accountants

20/02/2008

The latest changes to the capital gains tax regime have been welcomed by chartered accountants Harris Lipman as good news for buy-to-let landlords and investors.

Last month, Chancellor Alistair Darling confirmed plans first outlined in his October 2007 pre-Budget report to scrap taper relief on capital gains tax (CGT) from April 2008. Currently, someone selling shares or a business they have owned for more than two years pays CGT at 10 per cent on profits above their £9,200 tax-free allowance, instead of at 40 per cent, assuming they are subject to the higher rate of personal tax.

For non-business assets, such as buy-to-let properties, taper relief is less generous, though still useful. Available once the property has been owned for three complete years, after ten years’ ownership the owner currently pays tax on the profits above the tax-free allowance, at a maximum rate of 24 per cent.

Mr Darling has now confirmed that he will levy CGT at a flat rate of 18 per cent and to scrap the indexation allowance, which inflation-proofs the rise in value of an asset bought before 5 April 1998. Barry Lewis, senior partner at Harris Lipman, said: “Buy-to-let landlords and investors will certainly benefit from the 18 per cent flat rate.

“For example, someone who bought a buy-to-let flat for £200,000, which they sell within three years for £250,000, will currently pay £16,320 in CGT, after deduction of their annual CGT allowance. From April, the bill will be £7,344 – a saving of nearly £9,000.”

Following opposition from the business community to Mr Darling’s pre-Budget proposals - seen as a disincentive to enterprise and a serious blow to business owners planning retirement sales - from April, he will introduce a new “entrepreneurs’ relief” of a ten per cent rate on gains of up to £1 million accumulated during an individual’s lifetime. Owners of buy-to-lets do not qualify, as these are not classed as business assets.

Barry Lewis added: “CGT is complex area and anyone considering the sale or purchase of a buy-to-let property or other property investment would be wise to seek the advice of a qualified professional in exploring the most beneficial tax options.”

For more details, call Harris Lipman on 0208 446 9000.

 

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