Consider the Present Value of assets when calculating capital gains tax

My ‘currently 1.2%’ was a 2015 RPI ‘averaged’ figure.

ONS figures today (12 April 2016) show that the CPI has risen to 0.5% (Government’s preferred measurement)

RPI (which includes housing costs) 1.6% in March 2016 up from 1.3% in February 2016.

Bank of England’s target is 2%.

At 2% your future £1 would have to be £1.22 in 10 years just to keep pace. (to be able to buy the equivalent ‘shopping basket’)

This is an absolute and fundamental distinction between staying level in ‘real terms’ and making a 22p capital gain.

At the BOE’s target, Multiply the value of your asset today by 0.22 (1.22-1) and see how much you owe HMRC in 10 years time if you want to sell.

Then carry out a true internal rate of return calculation and reassess your investment.

You carry all the risk, seek ever more inventive methods of circumnavigating this issue … HMRC just sit and wait and governments close loopholes.

Have I got the wrong end of the stick?

What is the argument in favour of HMRC’s calculation method?

Maybe broaden the scope of discussion a bit?

Taxes are used to ‘encourage’ certain behaviours (promote family units perhaps), manage risks to a country’s stability (Mark Carne is concerned), perform social engineering (unaffordable local authority social housing), respond to public demands for balance and fairness (all BTL landlords are the root cause of rising house prices)

etc.

The argument isn’t necessarily entirely about present value.

I will keep an open mind. The better the balance the better any change.

I note that house prices are up 7.6% (this is just the headline, I guess more detail will show regional variations and give a better meaning to the figure).

Whatever the meaning this is 2 things to me:

1 Unsustainable
2. Even using my method of calculation I would pay more CGT.

Hamish

Hi All,

Just trying to stir a bit of interest.

It seems to me reading through posts here that is easier to find ever more inventive ways to negotiate CGT than to fix what I see as a serious fault.

This fault massively and unfairly benefits HMRC and rips the asset holder off.

Negotiating CGT = ‘loopholes’ that successive governments will close.

We need to fix the problem.

The Bank of England’s target inflation rate is 2%.

£1 today is the same as £1.22 in 10 years at this rate of inflation.

Buy a £200k property for BTL today and in 10 years it is £200k x 1.22 = £244k.

Any property value greater than this is a gain.

Any property value less than this is a loss.

The government say that £244k-£200k is a gain. The government own zero risk.

I believe that in this simplified example there is NO gain. But you have complete ownership of all risk.

Perverse avoidance example:

If the rules stay the same, in 10 years I should divorce my wife. My ex wife and I sell the property to the ex- mother-in-law as part of the settlement. I later marry the mother-in-law.

It doesn’t work out and a day later, divorce, sell the house, pocket the money and remarry my wife.

Given the current Maccarthyite style outing of ‘morally wrong’ tax avoiders, this and any other method of negotiating CGT will not be allowed by the HMRC no matter how benign.

Surely this must fire you up a bit?

Reassess your true internal rate of return.

I need 10 signatures and lobbyists to begin to fix this.

Thanks

Hamish

Set up the poll and I’ll sign up.

Your argument reflects my current concerns that we should be using npv to increment purchase values to more accurately reflect real today buying power.

My thinking is backed up by years of fiscal calculations for some of the larger uk companies. I’m not an accountant, my background includes programming fiscal applications.

CGT doesn’t bother me – it just means I make a bit less money of the property appreciation. Its IHT that is the real killer – I have been discussing giving away a property to Cats Protections just to reduce by IHT.