CGT increasing from 18% to 40% to fund lower paid people

[Eric Mc]

deeps said:

If someone inherits a property of value under the inheritance threshold, do they still have to pay CGT on it? If yes, is that only if they sell it?

So if someone inherited a property worth say 800k, would they pay inheritance AND CGT tax, or just one? If both, what a crazy law.

If you have a second property (it doesn't matter how you came to have it i.e. bought it, gifted it, inherited it etc), you will be subject to CGT only when you sell it.

CGT is based on the difference between the buying price (called teh "base cost")and the selling price. If you bought the property, the buying price will be obvious. If you acquired the property for nothing, the "base cost" for CGT purposes will be deemed to be the Market Value of the property on the date you acquired it - usually the date of probate if inherited.

[Ozzie Osmond]

Very true. On the other hand it's not politically acceptable for the "very rich" to pay tax at 18% (CGT) while the more successful man in the street is taxed at 42% on his earnings (income tax + NI).

A CGT rate in the region of 30% to 40% would not be in any sense aggressive IMO.

[NoelWatson]

Ozzie Osmond said:

Very true. On the other hand it's not politically acceptable for the "very rich" to pay tax at 18% (CGT) while the more successful man in the street is taxed at 42% on his earnings (income tax + NI).

A CGT rate in the region of 30% to 40% would not be in any sense aggressive IMO.

I think it is another step towards simplifying tax structure

[Eric Mc]

Ozzie Osmond said:

Very true. On the other hand it's not politically acceptable for the "very rich" to pay tax at 18% (CGT) while the more successful man in the street is taxed at 42% on his earnings (income tax + NI).

A CGT rate in the region of 30% to 40% would not be in any sense aggressive IMO.

If a higher rate of CGT is re-introduced, it is only proper that some measure to take into account the effects of inflation MUST be introduced too. It is extremely unfair to tax someone who bought a house (or any other capital asset) in 1984 on the price differential between 1984 and the present day without making some attempt to remove the infaltionary element of the gain.

And, of course, how do you define the "very rich".

I person may be poor in income levels (think pensioner) but may be high in asset value. Would they be subject to high rates of CGT is they sold a second property to (say) help fund retirement home costs?

[CoopR]

Ozzie Osmond said:

Very true. On the other hand it's not politically acceptable for the "very rich" to pay tax at 18% (CGT) while the more successful man in the street is taxed at 42% on his earnings (income tax + NI).

A CGT rate in the region of 30% to 40% would not be in any sense aggressive IMO.

I don't see any real reason CGT should be much higher than corp tax to be honest. With regards to second homes many of them will have been bought with after tax cash, probably taxed at the higher rate anyway.

Again it's something that hits the "comfortably poor" who made a wise investment way more than the "very rich".

[Eric Mc]

Discussing this on Radio 5 at the moment. There are lots of uncertainty at the moment. The following areas are still not clear -

Is the CGT rise limited to 40% or will 50% Income Tax payers also pay CGT at 50%?

What is happening to the CGT Annual Allowance of £10,100?

Will any measure of inflation protection (Taper Relief/Indexation) be reintroduced (as I mentioned above, Taper Relief was abolished in April 2008)

Will the Entrpeneur's 10% CGT rate remain in place if "normal" CGT rises to 40%?

Just an aside, old fashioned Indexation Relief has remained in place for assets owned by Limited Companies - even though it was abolished for individuals in 1998. If some of the more severe changes mentioned above come to pass - putting your investment assets into a limited company may, if CGT in companies remains largely unchanged, become a viable method of mitigating CGT charges.

It looks like the whole world of CGT is going to be very different to what we have been used to.

[will_]

will_ said:

JagLover said:

Eric Mc said:

Basicially putting CGT partly back to where it was before 5 April 2008.

Agreed

It seems to me to be a nonsense to tax income at 40/50 % and CGT at 18%.

Index the gain by all means but tax it the same as income.

I wonder if they'll stagger it as per income i.e. x% on the first £xk and so on? IIRC CGT was previously a flat rate tax over and above the personal allowance?

Any comment on these questions?

[Eric Mc]

will_ said:

will_ said:

JagLover said:

Eric Mc said:

Basicially putting CGT partly back to where it was before 5 April 2008.

Agreed

It seems to me to be a nonsense to tax income at 40/50 % and CGT at 18%.

Index the gain by all means but tax it the same as income.

I wonder if they'll stagger it as per income i.e. x% on the first £xk and so on? IIRC CGT was previously a flat rate tax over and above the personal allowance?

Any comment on these questions?

CGT has gone through many permutations over its 40 Plus year history. That is one of the reasons why it is so complicated.

Up until 6 April 2008, CGT was NEVER a flat rate tax. CGT was charged at the individual's top rate of Income Tax - whatever that happened to be. In reality, for most people, this turned out to be 40%. Of course, low income earners could find that a gain was taxed entirely or partly at their basic Income Tax Rate with the excess being taxed at the higher Income Tax Rate.
That was the bad bit. The good bit was that the gain was always reduced to take into account that part of the gain that was purely due to inflation. Between 1 April and 5 April 1998, this adjustment was caried out by looking at how the Retail Price Index (RPI) had moved in the period from 1 April 1982 to the date of the disposal. This was called "Indexation".
In April 1998, For individuals, indexation was replaced by a simpler system called Taper Relief. Indexation was retained for disposals by Limited Companies.

In April 2008, both Indexation and Taper Relief were abolished for individuals and CGT was charged at a flat rate of 18%. After representations by lobby groups, a special 10% CGT rate was introduced for business asset disposals by individuals.

[will_]

Eric Mc said:

will_ said:

will_ said:

JagLover said:

Eric Mc said:

Basicially putting CGT partly back to where it was before 5 April 2008.

Agreed

It seems to me to be a nonsense to tax income at 40/50 % and CGT at 18%.

Index the gain by all means but tax it the same as income.

I wonder if they'll stagger it as per income i.e. x% on the first £xk and so on? IIRC CGT was previously a flat rate tax over and above the personal allowance?

Any comment on these questions?

CGT has gone through many permutations over its 40 Plus year history. That is one of the reasons why it is so complicated.

Up until 6 April 2008, CGT was NEVER a flat rate tax. CGT was charged at the individual's top rate of Income Tax - whatever that happened to be. In reality, for most people, this turned out to be 40%. Of course, low income earners could find that a gain was taxed entirely or partly at their basic Income Tax Rate with the excess being taxed at the higher Income Tax Rate.
That was the bad bit. The good bit was that the gain was always reduced to take into account that part of the gain that was purely due to inflation. Between 1 April and 5 April 1998, this adjustment was caried out by looking at how the Retail Price Index (RPI) had moved in the period from 1 April 1982 to the date of the disposal. This was called "Indexation".
In April 1998, For individuals, indexation was replaced by a simpler system called Taper Relief. Indexation was retained for disposals by Limited Companies.

In April 2008, both Indexation and Taper Relief were abolished for individuals and CGT was charged at a flat rate of 18%. After representations by lobby groups, a special 10% CGT rate was introduced for business asset disposals by individuals.

Thanks Eric - do you think they might introduce a staggered rate as per income tax?

[Eric Mc]

It doesn't look like they intend to.

In effect, the pre April 2008 was a staggered rate.

[Floss69]

gerradiuk said:

The value of the property/CGT is calculated from the time the parent died.
I Understood that if you have resided there for 6 mths or more no CHT would be paid, so I would think one sister would not have to pay .
If incorrect please advise as I am in a similar position.

My friend's a tax advisor so this is as it stands today:

My MIL's property IHT would have been paid at the time their parents died ie, 10 years ago, but it is worth less than £200k but the profit in the last 10 years is more than the current capital gains tax threshold of £10k.

Say my MIL's half of the property is £100k
and her profit, ie, gain on the property value over the past 10 years is £40k then she has to pay tax of 18% on the £30k

Her sister doesn't have to pay any CGT as she lives in the property and it is her main home.

So the cost of my MIL being nice and doing her sister a favour has cost her not only half of the building repairs, double glazing, kitchen and bathroom, it's going to cost her to sell because her sister want's to move on. Had I known her at the time I would have advised her to charge her sister a nominal rent as she could have offset some of her expenses over the years.

I'm hoping it sells before the increase comes into effect. If not I may have to do the sums and see if we can buy out her sister, rent the property then at least we can offset repairs and wait until we have leaner times and the CGT comes back down before selling so my MIL doesn't loose out too much.

[Floss69]

Ozzie Osmond said:

Very true. On the other hand it's not politically acceptable for the "very rich" to pay tax at 18% (CGT) while the more successful man in the street is taxed at 42% on his earnings (income tax + NI).

A CGT rate in the region of 30% to 40% would not be in any sense aggressive IMO.

I agree with this statement - we have a second property which we get an income from - that's a business choice so in that respect the tax charges due are one of the risks we take into account. We can hang on to this property until climate is right for us to sell.

However, my MIL is a pensioner and like most people of her generation one of the children moves in and looks after sick parent(s). And as family values matter to them they don't want to see their sibling on the streets when their parents die and don't often realise or think about the implications in the long term - I do as I'm from a financial background. And again becuase her sister now requires a smaller more manageable home family takes precedence.

So yes the unsuspecting people on low incomes will be penalised more than the 'rich'.

[amir_j]

CGT allowance to be lowered?



from the telegraph

" The Lib Dems also want to bring down the level at which capital gains tax is payable from £10,000 to less than £5,000.

The Conservatives are understood to be resistant to that idea and negotiations are continuing. "

[bogwoppit]

deeps said:

bogwoppit said:

Northern Munkee said:

Single easiest way to make housing more affordable, and make more homes available to buy, rather than build more, make residential property less an investment opportunity, back to being what they should be.... just a home.

I'm not so sure. Regardless of whether a property is bought by a landlord or the family he would otherwise rent it out to, the number of potential purchasers stays exactly the same. If landlords sell their properties, the rental stock decreases, rents go up meaning more people want to buy a home, thus the demand is the same.

I can't see that. If a house could only be bought by a person who then had to live in it, that would dramatically cut the number of potential purchasers.

No, it wouldn't. The number of buyers is driven by the number of households. Each household either buys their house, or rents from a landlord who buys it. Net result: 1 household = 1 house = 1 purchase = 1 buyer. Tenants don't drop out of the sky to add to the pool of households just because a house was bought to be occupied by tenants rather than its owner. And likewise, stopping a house being bought to let out doesn't add to the housing stock. People have to live somewhere!

Admittedly this is a bit of an oversimplification, there are factors such as occupancy (unlet houses) which will make a small difference, and there is a margin for the discrepancy in 'perceived' value.

ETA - this doesn't mean that reducing the number of properties bought BTL wouldn't be a good thing, as it would definitely result in more people owning their own homes. It's just that the houses wouldn't actually drop in price as much as you might think. Rising rents would force tenants' hands. The real danger is that rocketing rents would leave tenants unable to save deposits, which in turn keeps rental demand high, which pushes rents higher...etc

Edited by bogwoppit on Friday 14th May 02:11

[audidoody]

JagLover said:

Eric Mc said:

Basicially putting CGT partly back to where it was before 5 April 2008.

Agreed

It seems to me to be a nonsense to tax income at 40/50 % and CGT at 18%.

Index the gain by all means but tax it the same as income.

Could it be that income is assured (while in employment) while the prospect of capital gains from investment is negated by commensurate risk?

Could it also be that the law of unintended consequences of this plan will mean a slump in share values as investors no longer feel the risk is worth the reward - which will hit anyone with any sort of pension, ISA investment and will shackle companies' ability to raise capital for expansion and investment?

And, as already stated, the law of unintended consequences could well lead to a reduction in CGT revenue as property and share owners who might otherwise sell retain their holdings.

Edited by audidoody on Friday 14th May 10:35

[Eric Mc]

audidoody said:

JagLover said:

Eric Mc said:

Basicially putting CGT partly back to where it was before 5 April 2008.

Agreed

It seems to me to be a nonsense to tax income at 40/50 % and CGT at 18%.

Index the gain by all means but tax it the same as income.

Could it be that income is assured (while in employment) while the prospect of capital gains from investment is negated by commensurate risk?

Could it also be that the law of unintended consequences of this plan will mean a slump in share values as investors no longer feel the risk is worth the reward - which will hit anyone with any sort of pension, ISA investment and will shackle companies' ability to raise capital for expansion and investment?

Edited by audidoody on Friday 14th May 10:23

I would argue that old, indexed system was fairer than the flat 18% system we've had for the past two yaers - especially for those who have owned assets for a long period of time (over ten years).

[audidoody]

I would agree with that as well. The longer you hold on to an asset the less eventual CGT tax you should pay. This mitigates against speculators. IF there is no indexation or taper relief property speculation is bound to increase as there would be no downside to a quick "in and out". France, for example, has a penal system of CGT on anyone who buys a new property and disposes of it within five years. AFter 15 years the CGT falls away to virtually zero.

[DonkeyApple]

amir_j said:

Akers said:

TheCarpetCleaner said:

cs02rm0 said:

M400 NBL said:

If this happens and there is no taper relief, a lot of landlords will be tempted to sell up.

I certainly hope so!

Would someone be so kind as to explain why this would be beneficial to the country as a whole?
Surely a sudden increase in the number of properties on the market would result in a rapid fall in house prices, thereby putting many home owners into negative equity?
Or is your hope purely a selfish one?

House price correction, Many areas (especially outside London) are out of control.

If prices go up and up and salaries do not then its not good overall. Instead of people who genuinely added value to the economy by buying a property and working on it, the bubble led to Greed with easy credit and wannabe property millionaires. At some point chickens have to come home to roost.
Many people are ALREADY in negative equity and if you use Property Bee, you will see how many are struggling to sell. Its the low interest rates that's making them get by- remember the boom had 110% LTV mortgages!

Labour let it happen as collected stamp duty/mp's slipped properties/tax from estyate agents etc etc but the numbers don't add up. Historically house prices have always been around 3.5 X salary iirc.

In crude terms to ensure some kind of stability anyone with an LTV above around 75-80% needs to be squeezed out of the market. Fair leverage must be around 4 to 5 times I would have thought for a more stable market.

I suspect that these homes will be the first to be out when rates rise.

All this Govt faffing about with stress testing the banks they ought to make every lender stress test their clients and then issue written warnings to those who are clearly at high risk of rising rates.

[briSk]

the annoying thing about this is personally is that my garden is big enough to pay cgt on a proportion of it if we sold (thanks for the help, a while ago, in understanding this eric).

this property was not bought 'speculatively' (it was just built as cheaply as possible because of doubts around house prices but desire for a 'home').

no because it;s only a proportion and because there are two of us and because it was at 18% it wouldn't have mattered if we'd had to have sold up to move to japan or something... but if they reduce the allowance to 5k and put it up to 40%... (arrgghh!) i guess i'd have to 'gift' enough of it to my neighbours and then sell)??

[Eric Mc]

Wait and see what Inflation Proofing measures they bring in - if any.