0:01 AM, 23rd September 2024, About A year ago 13
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Amongst all the speculation in the media about expected rises in Capital Gains Tax (CGT) and Inheritance Tax (IHT), I’ve been surprised and frustrated that none of the pundits have realised that for unincorporated landlords (and some second home owners) whose wealth is in their properties, CGT and IHT can combine to create a 54.4% tax on their wealth – today.
If properties are sold now producing, for example, a £100,000 chargeable gain after allowances, a landlord, who may have been pushed into the higher-rate income tax band solely because of the restriction on mortgage interest tax relief, has to hand over £24,000 in CGT to HMRC.
The remaining £76,000 immediately becomes part of the landlord’s estate.
If the landlord is wealthy enough to come into the IHT net – not difficult if a few properties are owned – but needs to save the CGT remainder to provide some income (or if he or she dies within three years of giving it to his or her inheritors) then the Government pockets a further £30,400 (40% of the £76,000) IHT, leaving the landlord’s estate with just £45,600.
In all, the landlord has been taxed £54,400 on the £100,000 chargeable gain, equivalent to a tax rate of 54.4%.
When the Government raises the CGT and/or IHT rates in October, plug in the new rates and see how much more they are going to take!
Steve
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Tom C
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Member Since November 2021 - Comments: 34
17:27 PM, 27th September 2024, About A year ago
Reply to the comment left by Paul Smith at 26/09/2024 – 05:10
9% is easily achievable on the stock market.
I’ve had an annual average of 9.91% over the past 7/8 years using nothing but a basket of global tracker funds.
The US stock market alone has averaged around 10% per annum since 1926 – and that includes the ten year tumble of the Great Depression.
Crouchender
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Member Since January 2023 - Comments: 308
8:10 AM, 28th September 2024, About A year ago
I think Red Reeves will be very hard line on LLs on 30th October. If CGT goes up to 40/45% then it will be immediate as she is talking about ‘in year’ savings.
What this does is lock in LLs assets as we can’t envisage selling at those rates so preventing PRS declining massively as we all sell (remember they will be in power for 10 years). You may argue that Reeves won’t get the extra CGT from us then so no real money raised but don’t forget she will put NI on unearned rental income so she gets her extra TAX from us that way.
It highly likely that even second homes will be shifted from their business rate CGT to the same rate early too as they have already stated that S24 will be slapped on in April 2025. Therefore again those owners will be forced to bring stock into PRS.
However, the main issue will be normal LLs will not be investing in any new PRS supply in this hostile environment so rents will still go up another 10%, hopefully, to cover the NI tax. In conclusion there will be a housing emergency coming their way in 2025.
Judith Wordsworth
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Member Since January 2015 - Comments: 1371
9:49 AM, 28th September 2024, About A year ago
Reply to the comment left by Tom C at 24/09/2024 – 17:23
But you can only mortgage or remortgage a BTL if your income stacks up against loan to value.
I had, at the time, 3 rental properties owned unencumbered and could only raise £25k against the joint properties towards a 4th so I didn’t bother. My income from the rental properties less allowable expenses was all that was taken into account.