BTL mess and CGT

[tescorank]

So I've been asked by one remaining of two brothers.

Scenario: about 15 years they purchased 20 different properties together 50/50. 5 years ago one of them passed away aged 45, he left his share by default to wife (no will), each family now decided that in future they need to split properties for the convenience of passing on to the children, so how do they split the jointly owned properties so they do not attract a huge capital gains liability ?

I know this is one for accountants but pheads has always given good advice in the past.

[Eric Mc]

Split in what way?

How many people will acquire?

How many people will divest themselves of their ownership?

Will any money (or other consideration) change hands?

[tescorank]

Split so both families can pass their share to the next generation.

All loans paid off.

No monies to change hands but the problem is they purchased them in two brothers names.

[Eric Mc]

How many people legally own the properties now?

[tescorank]

Two, one brother and widow.

[Eric Mc]

I've just sent you an e-mail.

[Jon39]

The killer change to CGT rules came in during the coalition government (Conservative and Liberal Democrat).
You might have your own opinion, about which of those parties pushed for the change.

What happened was the removal of the long-standing indexation allowance.
ie. Owning a property (other than sole main residence) for a long period, will have a value increase partly and sometimes substantially due to inflation (devaluation of money).
CGT is now payable on the inflation part of the value gain (previously it was not), and so the tax change can make a very big difference to the amount of tax payable.
Many BTL and second home owners may be completely unaware of this, until a sale or disposal takes place.

The irony about increasing the severity of CGT, is that often owners delay transactions and in the past the Treasury have collected less revenue following CGT tax rises.

Equity assets can be held within an ISA, so exempt from CGT, but I don't think there is a way of owning a house in an ISA.

Edited by Jon39 on Sunday 7th May 12:19

[GT03ROB]

Jon39 said:

The killer change to CGT rules came in during the coalition government (Conservative and Liberal Democrat).
You might have your own opinion, about which of those parties pushed for the change.

Edited by Jon39 on Sunday 7th May 12:19

Unless I'm mistaken, always possible, this change came under Labour......

[Eric Mc]

GT03ROB said:

Jon39 said:

The killer change to CGT rules came in during the coalition government (Conservative and Liberal Democrat).
You might have your own opinion, about which of those parties pushed for the change.

Edited by Jon39 on Sunday 7th May 12:19

Unless I'm mistaken, always possible, this change came under Labour......

You are almost correct. Alistair Darling removed what was called "Taper Relief". Old style "Indexation" had gone almost ten years before that. The exception is with limited companies which still get old style Indexation on assets.

Darling's reforms introduced a new Capital Gains Tax rate of 18% and 28%.. When Taper Relief was available, people paid CGT at their basic OR their higher rate Income tax rates. That, effectively meant people paid CGT at 40% - once Taper Relief had been applied to the gain.

[sumo69]

Are they owned as "tenants in common" or "joint tenants"? Makes a substantial difference,,,

[Jon39]

Eric Mc said:

GT03ROB said:

Jon39 said:

The killer change to CGT rules came in during the coalition government (Conservative and Liberal Democrat).
You might have your own opinion, about which of those parties pushed for the change.

Edited by Jon39 on Sunday 7th May 12:19

Unless I'm mistaken, always possible, this change came under Labour......

You are almost correct. Alistair Darling removed what was called "Taper Relief". Old style "Indexation" had gone almost ten years before that. The exception is with limited companies which still get old style Indexation on assets.

Darling's reforms introduced a new Capital Gains Tax rate of 18% and 28%.. When Taper Relief was available, people paid CGT at their basic OR their higher rate Income tax rates. That, effectively meant people paid CGT at 40% - once Taper Relief had been applied to the gain.

OP states assets were purchased 15 years ago.
Inflation during that period has been 53%.

Subtract the purchase cost from the present value, deduct the allowances, then multiply by 53%.

That gives a rough approximation of the amount you now have to pay tax on, which is not a real capital gain at all. Probably quite a large amount of money.

By staggering the individual property sales into different tax years, could make a slight difference, or perhaps rather drastic, but death would eliminate CGT under the present rules.

I concentrate on investments which are free of CGT, so have never done BTL and 2nd home will not be for sale, whilst this tax on inflation regime continues.