Capital gains on BTL to be taxed as income

Capital gains on BTL to be taxed as income

16:52 PM, 25th August 2016, About 8 years ago 124

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Capital gains on BTL to be taxed as incomeIf you thought clause 24 of the 2015 finance bill was underhanded, wait until you get a load of this! Capital gains on BTL to be taxed as income

The government have slipped some additional clauses into the finance bill 2016 “Sections 75-78: taxation of profits from trading and investing in UK Land” which make profits made on the sale of buy-to-let property become taxable income, at income tax rates.

This wasn’t announced in the budget and there has been no consultation.

The Law Society has made representations to the government, prepared by its Corporation Tax sub-committee. These representations set out how the amendments will materially change some investors tax obligations.

Law Society chief executive Catherine Dixon said “By introducing a significant change in this way, the government is denying the public the chance to consider and comment on these proposals. If the government did not intend to make a material change, they need to clarify the language in the bill before it is passed. If they are intent on these changes, they should submit them for proper public consultation and legislative scrutiny”

A Law Society Pres Release says …

“Significant amendments to the Finance Bill slipped in at committee stage set a disturbing precedent of avoiding proper consultation and scrutiny.

The changes, which alter the way buy-to-let properties will be taxed, may result in many investors paying income tax rather than a capital gains tax on their investment, creating uncertainty for taxpayers.

The way these changes were introduced, in particular without consultation on the draft legislation before it was added to the bill at such a late stage, starts to feel like legislation by stealth.

No matter what the policy proposals, proper consultation and process is vital to maintain public confidence in our democratic institutions.”

They key sections of the report are:

2.4 For example, proposed section 356OB(4) CTA 2010 would apply the new rules where “the main purpose, or one of the main purposes, of acquiring the land was to realise a profit or gain from disposing of the land” (Condition A). The consequence would be that the profit on realisation would be taxed as income rather than as capital gain. We consider that there are many situations where this formulation of the test would capture transactions that are uncontroversial investment transactions. Similar concerns arise in relation to Conditions B and D. (Proposed section 517B ITA 2007 has the same effect for income tax.)

2.5 In particular, we consider that this formulation of the test could apply to many buy-to-let investors, despite the fact that they are clearly engaged in a property investment business on general principles. Any buy-to-let investor will assess the overall yield before making an investment decision. In areas of the country with low rental yields, an essential part of the investment proposition is the prospect for capital growth, even if the investor‟s intention is to hold the property for the medium to long term. Indeed in the current market, and given the low returns on other asset classes, there are few areas where the prospect of capital growth is an immaterial consideration for investors. Financially speaking, it is hard to say that the obtaining of that capital growth would not be one of the main purposes of acquiring the land. However, the average buy-to-let investor will have assumed that it will be taxed at capital gains tax rates on ultimate disposal of the property. If the government‟s intention were to change this, then the Society‟s view is that this should have been subject to proper consultation on the principle policy and the draft legislation. If the government‟s intention is not to change this, then the Society considers that the terms of the legislation should be amended to reflect that.

Sections 75 and 76 of the finance bill deal with Corporation Tax but 77 and 78 deal with Individuals/Income Tax.

A link to the specific bit in the draft legislation is here -> http://www.publications.parliament.uk/pa/bills/cbill/2016-2017/0047/cbill_2016-20170047_en_17.htm#pt3-pb5-l1g77

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Comments

Mark Alexander - Founder of Property118

19:59 PM, 25th August 2016, About 8 years ago

Reply to the comment left by "BTL INVESTOR SCOTLAND" at "25/08/2016 - 19:17":

Yes, from what I can tell it will come into force when the bill receives Royal Assent.

We MUST fight this!

Mike W

20:13 PM, 25th August 2016, About 8 years ago

Er when did the communist party take over the UK government? Have I missed something?

Anthony Endsor

20:48 PM, 25th August 2016, About 8 years ago

They've been in for decades Mike, just under a different name!

Donald Tramp

21:06 PM, 25th August 2016, About 8 years ago

How on earth do we fight this? We're toast. The government has it in for us. They are just to keep passing laws till they bankrupt all of us.
All the graft I've put in, evenings, weekends and they are just going to steal it off me.
Here I was thinking that I lived in the UK. You know a country that rewards hard work and property law.
Sick to the back teeth.

Mark Alexander - Founder of Property118

21:33 PM, 25th August 2016, About 8 years ago

Reply to the comment left by "Donald Tramp" at "25/08/2016 - 21:06":

The legal arguments here are much stronger than for section 24. We can use the same EU State Aid law and a whole lot more.

Money will be required though to fight this on three fronts; legal, media and lobbying.

Big Blue

21:43 PM, 25th August 2016, About 8 years ago

Seriously? Like, I mean, f*_ing seriously?!?!

This is just confiscation of property gains now, pure and simple. They're taking our income with S24 and now they're taking our gains as well?! The thieving...

Well this makes a mockery of themselves in three ways. 1, because as has been pointed out on this thread, they've shot themselves in the foot over their lies about LL selling to FTBs as this attack makes it ever the less likely. 2, because that utter **** David Gauke had previously said S24 was OK as we'd all still be able to benefit from rising values. Another lie there? Should have expected it. And 3, because the govt and BOE have always said they don't want a property crash - yet if there's a deadline attached to this, as there surely will be, LLs will start selling in numbers to beat the deadline.

Well, if this happens in the way it's presented, that's my conscientious 20-year career finished. And if it wipes me out, myself and my family could end up reliant on the state. How do you suppose they'd like them apples?!

Darlington Landlord

22:00 PM, 25th August 2016, About 8 years ago

So does this mean if we sell a property at a capital loss (some of us in the north have not seen eye watering rises) we get a deduction to offset on this years income/profit?

PaulM

22:01 PM, 25th August 2016, About 8 years ago

Before anyone reacts violently to my comments, just let me clarify that I'll also be impacted...

They're looking to tax the gains at your normal taxation rate and not the CGT rate so as investors, that's 20% CGT versus say 40-45%. Worst case, it will cost us an additional 25% of the gain but you won't have materialised any gain unless you sell the property, so assuming your LTV will probably be 70-80%, then you'll still come away with your 20-30% original investment and 50-55% of the profit.

Or have I missed something?

John Stuart

22:34 PM, 25th August 2016, About 8 years ago

In committee on 7th July, David Gauke stated "the measure is targeted at those who have a property building trade; it does not impact the tax profile for investors in UK property".
However, the clause seems to be written in such a way that it would describe typical landlords.
Is it badly written and we don't need to worry so much? Or is it a cynical move to alter tax principles (again) specifically to hammer landlords.

Big Blue

22:56 PM, 25th August 2016, About 8 years ago

Reply to the comment left by "John Stuart" at "25/08/2016 - 22:34":

Well, to see an underhanded and uninformed goon like Gauke publicly stating that it doesn't affect landlords actually makes me breathe more easily. From the rest of his/your comment, it appears that what they're doing is closing the 'intention' loophole between buying to renovate to let and buying to renovate to sell. HMRC have long been challenging these cases and doing their damnedest to get them taxed as income where CGT has or may have been claimed. Maybe this is just their way of forcing those short-term holdings into trading income once and for all, to prevent the lower CGT rate being claimed? I flipping hope so!

Although, just to be clear, the treasury have been suspected for some time of trying to put CGT up to 40/45% for property investors and there was some surprise that Osborne hadn't done it when he recently had the opportunity. I'm sure it's coming.

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