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 7 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 ->

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10:10 AM, 26th August 2016, About 7 years ago

Reply to the comment left by "Dr Monty Drawbridge " at "26/08/2016 - 08:59":

Shshh don't even whisper the idea for it will surely become reality!

Mike W

10:33 AM, 26th August 2016, About 7 years ago

To take up a point mentioned by Mark before. Where are the Landlord Associations on this? Where are the press statements highlighting the law society report? Where are the newspaper articles complaining about the sneaky change and badly drafted legislation? Where are the news reports on the BBC?

Are those of you who are members (I am not for this very reason) going to complain to the Landlord Associations about their lack of response?

We do need to organise.

I just merely note that if the Law Society had not noted it who would have noted the change?

Luke P

10:39 AM, 26th August 2016, About 7 years ago

Reply to the comment left by "Mike W" at "26/08/2016 - 10:33":

As I've said before, I think with the advent of P118AG (and whilst I appreciate they have different offerings) LLs should reconsider their RLA/NLA memberships, if nothing more than to wake them up to their inaction on issues such as this.

Mark Alexander - Founder of Property118

10:43 AM, 26th August 2016, About 7 years ago

Further thoughts on the implications of the worst case scenario, i.e. legislation receives Royal assent as drafted and HMRC apply it to maximise tax receipts:-

1) If the profit is treated as income for tax purposes then any available CGT allowances will not be applicable.

2) When s24 is also in full affect then mortgage interest will be added to other taxable income and profits from sale of property to determine which tax band we fall into. A couple previously earning just £10k a year each could very easily find that when they sell their one and only investment property their taxable income is over £100,000. They would lose their nil rate band tax allowance on this basis!

FFS, why haven'y all readers of this article chipped in a tenner a month to fight this?

At the point of writing this comment 9,975 people have read this thread and only two have committed to a tenner a month to fund a fight back. If all readers had committed £10 a month the budget for the resistance movement would be approaching £100,000 a month!

Mark Alexander - Founder of Property118

10:48 AM, 26th August 2016, About 7 years ago

Reply to the comment left by "Mike W" at "26/08/2016 - 10:33":

The Landlord Association are probably planning to have a meeting over the next few days to discuss this news and then to decide whether to wait to see what the first move of their rivals is. At best they might have something on their agenda to decide who makes a trip to the House of Commons or The Treasury to have a polite quiet word about this with somebody.

Now I've written this comment of course, they will probably also be debating what their one liner media comment will be and spending an hour or two discussing the insolence of the founder of Property118 for making these remarks!

Of course I still think the Landlord Associations have their place, they do lots of things very well and lots of things that Property118 Action Group don't do at all. Where they are hopeless is "Fighting For Landlords"

Another very good, very recent example of that is Paul Routledge from managing to persuade Bristol council that Selective Licensing was futile. He achieved something that NLA and RLA have never managed to prevent. The two biggest Landlords associations even act as co-regulators of some licensing schemes for heavens sake!

Alex Caravello from MK Landlords also managed to convince Milton Keynes that licensing didn't make sense. Alex is already a member of Property118 Action Group and a very active one too. It is people like this we seek to unite and raise funds to help them to win more fights of this nature.

The big Landlords Associations have proven to be about as effective as a chololate fire guard. They refused to back our fight against West Brom too but we managed to win that without them.

Whiteskifreak Surrey

10:58 AM, 26th August 2016, About 7 years ago

Reply to the comment left by "Mark Alexander" at "26/08/2016 - 10:03":

Thank you Mark - much appreciated!
Kind Regards

Whiteskifreak Surrey

11:54 AM, 26th August 2016, About 7 years ago

Reply to the comment left by "Mark Alexander" at "26/08/2016 - 10:43":

Just done, Mark!
I think that horrible news needs to sink in a bit, some people must realise consequences.
I saw the post I think last night and just could not believe what I was reading. In the time of a huge housing crisis they are doing something like that.
I always thought this country is pro small business, pro taking care of yourself for an old age, pro law. It does not longer looks like that. Even in former communistic countries the law and regulations were not retrospective. Here we see something completely opposite.

Mark Alexander - Founder of Property118

12:16 PM, 26th August 2016, About 7 years ago

I have been giving some thought to what sophist justification The Treasury might have for this.

Does this sound likely and slightly familiar?

"To level the playing field between limited companies and private landlords investing investing into residential rental property we will be taxing all profits made on the disposal of such property on the basis that it is income"

Kathy Evans

12:32 PM, 26th August 2016, About 7 years ago

Reply to the comment left by "Mark Alexander" at "26/08/2016 - 12:16":

Meaning that "We'll make it even better for our big incorporated cronies by charging them 20% on the profits of a sale and their competition, the unincorporated landlords, 40-45%. That, coupled with the extra tax the unincorporated landlords have to pay on their "business expenses" aka mortgage costs, should soon put them out of business and give the big corporations we have invested in a clear run.

Mark Alexander - Founder of Property118

12:37 PM, 26th August 2016, About 7 years ago

Reply to the comment left by "Kathy Evans" at "26/08/2016 - 12:32":

Yep, that pretty much sums it up Kathy.

I've read an unsubstantiated comment on Facebook suggesting it will not apply until 2018. If that is proven to be true then at least some landlords will be able to implement the necessary avoidance strategies before then, e.g. incorporation or take residence in a tax haven for the purpose of incorporation and/or to sell part of their portfolio like I'm doing.

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