Trapped by high gearing and CGT

Trapped by high gearing and CGT

11:03 AM, 14th June 2014, About 10 years ago 37

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I purchased a 4 bed buy to let property in 2001 for £115,000 and by 2008 it was worth considerably more so I refinanced it to 85% LTV and used the net proceeds to invest into more property. I have never lived in the any of the properties. Trapped by high gearing and CGT

The properties I purchased in 2008 initially fell in value and have just about recovered to the price I purchased them at, but not quite.

I have now realised that property investment isn’t for me and I want out. I’m having to subsidise my portfolio to the tune of around £6,000 per annum and that can’t go on.

The loan on the 4 bed house is £195,000 and the value is currently around £240,000.

If I sell it for £240,000 then my capital gain will be £125,000. When added to my income this would put me into the 50% tax bracket so my CGT bill would be approaching £60,000 after using my annual CGT exemption. This is more than the net proceeds of sale.

I have spoken to my accountant and the only thing he could suggest is to go and live in the 4 bed property for a while. However, this would not be practical.

I am also concerned about the prospect of interest rate increases which may have a dampening effect on the recovery to values over the last 18 months or so.

Short of continuing to service the losses of £6,000 per annum for a few more years does anybody have any other suggestions please?

Many thanks


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Nigel Fielden

13:13 PM, 14th June 2014, About 10 years ago

Dear Anon

One thing which has not been mentioned yet is rent increases. Many landlords shy away from increasing rent to "good tenants" but this is business and in my experience most tenants will accept reasonable increases every couple of years without question.

I would also echo the suggestion about professional house shares. I have a couple of properties specifically converted for this market and the returns are much better than straightforward house lets. In fact I have one underperforming 3 bed townhouse which I am going to spend £25K or so converting to a 4 bed professional HMO. The rent will increase from £700pcm to around £1600pcm - albeit with the extra cost of utilities and council tax. Worth thinking about depending on the location of the properties.

13:17 PM, 14th June 2014, About 10 years ago

Hi Anon,

I know it is no consolation, but you are not alone.

There are many "zombie landlords" who are surviving only because of the low interest rate environment.

I just wondered if you have any Mortgage Express mortgages?

If so, and you sell any, they may invoke their "right to consolidate", which means paying down other MX mortgages you have with them, with any excess equity from the sale.

I don't have much to offer in the way of help, I am sorry to say, other than that you should speak to specialist tax advice.


14:34 PM, 14th June 2014, About 10 years ago

Reply to the comment left by "Monty Bodkin" at "14/06/2014 - 12:14":

You have got me questioning myself now. My understanding was that CGT is payable at the highest rate of tax paid after adding earnings onto capital gains.

If you are right then I am in a similar position to that which I was in 2008 and that's a real dilemma. Should I cut my losses now, get out of property and accept that my rental losses will never be used or should I speculate on low interest rates, capital growth and the cost saving and alternative strategy proposed by Mark?

I shall have to give this some deep thought and speak with my accountant again.


14:35 PM, 14th June 2014, About 10 years ago

Reply to the comment left by "Nigel Fielden" at "14/06/2014 - 13:13":

Thank you Nigel, I shall certainly explore these options before making any decisions.


14:37 PM, 14th June 2014, About 10 years ago

Reply to the comment left by "Vanessa Warwick" at "14/06/2014 - 13:17":

Thankfully Vanessa I don't have any mortgages with Mortgage Express. From what I have heard they are a bit of a nightmare. I do have a very good accountant and will be having another chat with him as it appears I may have misunderstood a few things in respect of CGT.


11:07 AM, 15th June 2014, About 10 years ago


I believe the cap gain is max at 28% to not same as your income tax rate

Phil Ashford

12:42 PM, 15th June 2014, About 10 years ago

Did your accountant actually advise you?

If so, you have faith in them?

Londoner 43

13:39 PM, 15th June 2014, About 10 years ago

I presume you have been able to deduct the annual rental losses from your income before paying tax each year? (Or carry over the losses if you did not have enough income to set against.) How very unfortunate for you to remortgage and buy new properties shortly before the market fell. I also considered it but decided against it at the time. I probably have to move to my one rental flat before I sell it as the capital gain on it is over £300K over the past 10 years. Or leave the country for 3 complete tax years, I believe. Let's hope the Government does not rush in to change the rules before I am ready to sell!


20:01 PM, 15th June 2014, About 10 years ago

Reply to the comment left by "Phil Ashford" at "15/06/2014 - 12:42":

I have spoken to my accountant about this but only on a general level. It seems quite clear now that I have misinterpreted what he meant when he said I would pay CGT at the highest rate.

@Londoner43 - I am quite certain that rental losses cannot be offset against other income because if that could be done my accountant would have done it. I also think you have left it too late to leave the country in order to escape CGT as I think you will find that all people, resident or otherwise, will be paying CGT as of next April.

To all - thank you for all of your contributions. It would appear that if I sell up now I will be more or less back to where I would have been in 2008, save for the accumulated rental losses. The question now is, with all of your suggestions, can I turn the losses around and use profits to amortise the rental losses. At the moment I am torn between learning from my mistakes and cutting and running or learning from my mistakes and soldiering on. What you would all do?

Monty Bodkin

20:39 PM, 15th June 2014, About 10 years ago

Hard to say without knowing your full circumstances.

All other things being equal, your heart isn't in it anymore so the obvious thing would be to get out (and keep rolling forward your losses in case you have the time and inclination in the future).

However, it seems you may have some base rate tracker 'lottery win' mortgages. It's hard to see how you can be losing on those. I'd ruthlessly cut out all the dead wood and concentrate on making the few remaining work very hard.

BM mortgages are portable BTW.

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