New Capital Gains Tax Rules

April 2008

Changes by the Government to the Capital Gains Tax Law appears to be a great benefit to the general public, whilst being a substantial loss to the Treasury, so why? Votes perhaps?

From this month, the CGT on sales of second homes will come down to a flat rate of 18% from previous level at 40%. Good news for the homeowner it would appear. But hold on, not so fast.

This is the proverbial ´Double Edged Sword´, for on one hand it is a huge lifeline to But-2-Let landlords who will no doubt be reconsidering their position on Buy-2-Let investment portfolios, it also could encourage those same landlords to dump buy-2-let property on the market.

Whilst unproductive (New) buy-2-let properties probably won´t be viable to to sell (Due to the lack of Capital Appreciation), other properties are likely to suddenly appear very expendable from the B2L portfolio.

For Example: If a landlord has two properties rented out, one owned for 10 years and the other 2, then there will be a huge benefit to releasing the equity (Selling) the older property in favour of shoring up the other less productive B2L unit. In fact the new rate could mean a 22% increase on the NET profit.

With the UK property market at the top of what could be a very long & steep decline, it makes sense for the landlord to cash in now before the Government realises what a poorly thought out plan it was!

It´s estimated one in five UK mortgages are ´buy to let´ and countless ´real´ mortgages serve the same purpose, plus unleveraged rented property accounting for up to another 10% this could represent a third of the housing stock in the UK, suddenly being more attractive to sell than hold.

Leading to a flood of virtually unsaleable property coming to market further decreasing property values.

We´re not saying it WILL happen, only that yet another Government policy has left the door open for further pain and confusion in the housing market. Reminds us of the meddling Govermment of the late 80´s who effectively started that crash.......

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