Q:It is proposed that in April, the rules for capital gains tax are changing, and there will no longer be taper relief, but a flat rate of 18% CGT chargeable. This is a big bonus for those high tax bracket second property owners who otherwise would pay 40% on profit.
It would be a good opportunity for all those BTL investors who want to get out of BTL to sell after April, and only pay 18% CGT. Can we be expecting to see a huge glut of properties on the market after April, as landlords sell off their devaluing 'assets', increasing the supply and further driving down property prices?
Is anyone actually waiting until after April to start looking to buy in order to get a good deal? Just interested in everyone's thoughts on this.
AH
but if most recent BTL entrants were rational they wouldn't have got into BTL in the first place
it takes weeks to sell a property
I have approximately a 50% BTL mortgage. Rent is double the mortgage IO payment. If the bank wants any of the money back, they can have half immediately (from offset residential mortgage account) and all within 180 days without me losing any interest.
Thanks for your concern anyway.
GG
Edit: SHould add that CGT is only on the rpofits… since any BTL hamsters that bought in the last 2 years are likely to make little or no profit, or a loss, then there will be no CGT anyway.
Recent newcomers to BTL are unlikely to use their allowance, especially after other allowances (costs) are added.
Others simply would not declare the gain to the taxman and would therefore pay 0%.
A basic rate taxpayer may accommodate any gain withing their tax allowance. A reduction from 22% to 18% is negligible especially after the impact of losing taper relief is factored in. Maybe even an increase in the tax liability.
Of course, most will see an improved position by waiting until April but, BTL is an abbreviated form of Buy-to-Let. BTL LLs will generally want to keep their houses and may look to add to their portfolio if/when prices fall.
I have just the one and I shall never pay CGT as I shall never sell it. CGT is not payable on death. My tenant enjoys the security that my attitude brings. Pay the rent and the home is her's for as long as she wants it.
GG
Once all the BTL hamsters put all their properties on the market, prices are going to go into freefall.
Just out of interest, do you think that the 'amateur' type BTLer coming into the market over th elast few years, pensionfunders, etc, as opposed to the professional landlord) actually KNOW about this CGT changes.
I must say I havent seen a great deal of discussion about it in the press nor on TV….
The CGT changes ALSO wipe out taper relief and any indexation from April so for some of us the CGT changes mean an INCREASED tax bill on sales.
I'm selling one of mine, max taper relief works out at 24% CGT as opposed to the 18% I will pay when it's sold (contracts exchanged) in April. Bit of a 'no brainer' really. Nett yield is under 3% – add to that a 'flat' market (at best – I expect prices to drop) for the next couple years, it makes perfect sense to lock in some profits.
new CGT will take place from completion date
therefore if your looking to sell you would have had your property on the market for at least a month already
anyone notice a big increase in properties for sale during the past 1-2 months?
The CGT changes ALSO wipe out taper relief and any indexation from April so for some of us the CGT changes mean an INCREASED tax bill on sales.
Indeed – but the people likely to lose out with the new rules are those who have held on to assets for a long time. Anyone who has done so is still more likely to hold on to their property than sell it IMO as they have shown that they actually are in it 'for the long haul'.
The rules reward those out to make a quick buck and I'd be willing to bet that the 'newbies' of the last few years are more than willing to exit the market with a quick buck ……
The CGT changes ALSO wipe out taper relief and any indexation from April so for some of us the CGT changes mean an INCREASED tax bill on sales.
some will be in a position of not being able to sell – not enough equity to pay CGT and no money in the bank for the taxman – but equally not getting enough rental to cover the mortgage and costs – for them – repossession will be the only option
There's bound to be quite a few BTL properties out there with not reasonable amounts of equity (at current prices) in them.
If they aren't yielding a good return on investment then given the shaky nature of the market I think that many might be looking into cashing in that equity ASAP … once the reduction to 18% from 40% CGT is introduced.
Personally, I think that the CGT reforms have propped the market up somewhat in the last few months … why sell an investment property and pay 40% CGT when, if you can just hold out a couple more months you pay only 18% CGT on any profits?
Does anyone know how far back in time you'd have to go before the the BTL sums make sense given average house prices and likely rents for said houses?
Ironically, as houses drop in price the yield on existing BTLs will actually improve. Counter-intuitive but true. Of course, capital depreciation is likely to be an issue just as capital appreciation was on the way up and should a BTLer end up in negative equity and with rents not meeting mortgage repayments, they are royally screwed.
some will be in a position of not being able to sell – not enough equity to pay CGT and no money in the bank for the taxman – but equally not getting enough rental to cover the mortgage and costs – for them – repossession will be the only option
It would be a good opportunity for all those BTL investors who want to get out of BTL to sell after April, and only pay 18% CGT. Can we be expecting to see a huge glut of properties on the market after April, as landlords sell off their devaluing 'assets', increasing the supply and further driving down property prices?
Is anyone actually waiting until after April to start looking to buy in order to get a good deal? Just interested in everyone's thoughts on this.
AH
It has long been speculated that this will cause a rush of nervous BTLers to head for the exits. The new rules on CGT certainly make flogging off the property and taking the profit a lot more attractive.
Prices don't look set to take off any time soon so a clever buyer would be advised to wait it out for a few more months to see how the market reacts to the change.
the general consensus is for flat or reducing prices, but as has been shown with the bubble of the past few years, property prices aren't bound by the usual rules of economic rationality.