Lawyer warns against selling homes due to CGT hike

17 May 2010 | By Natalie Thomas

Wealth management lawyer Moore Blatch is warning investors not to rush into selling property ahead of the proposed rise in Capital Gains Tax.

The government announced plans last week to increase CGT from 18% to 40%.

But Moore Blatch says that even with the proposed rise in CGT many investors would be better off holding onto their property, unless they were planning a sale within the next 12 months.

The firm adds that those who want to keep property for retirement planning or inheritance should consider putting them into a trust as this could remove capital gains issues.

Moore Blatch cites Land Registry data which shows that prices have risen 7.5% over the last 12 months.

If this trend continues, the lawyer says investors could be financially worse off if they sold now rather than in a year’s time, despite the doubling in the rate of tax.

For example, an investor selling a £200,000 property now with a capital gain of £50,000 would be liable for £7,182 CGT at 18%, taking into account the personal allowance. The net worth of the property would then be £192,818.

But if property prices increased a further 7.5% over the next 12 months, the property would be worth £215,000 and the gain would be £65,000 liable for £21,960 of CGT at 40% after the personal allowance had been deducted. The net worth of the property would therefore be £193,040 – more than it would have been the year before.

David Charlesworth, head of wealth management at Moore Blatch, says: “Anybody that is running property within a business should seek tax advice as there are likely to be tax changes that need consideration such as business property relief, agricultural property relief, using inheritance tax and trusts for estate planning.

“We would advise against making hasty decisions especially with regards to any CGT rises as the capital appreciation is likely to outweigh any increased tax liability.”

Readers' comments (11)

Anonymous | 17 May 2010 12:50 pm
This does ignore the potential return on the £192,818 invested in an alternative vehicle. Also a growth in property prices of 7.5% over the next twelve months may be optimistic
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Mike LeGassick | 17 May 2010 3:17 pm
Surely indexation needs to return so as to not compromise people that have invested in property. It would seem grossly unfair otherwise and will only go to deter would be landlords from providing qaulity accomodation to let.
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Anonymous | 17 May 2010 3:27 pm
I have to agree with above reader - even a 1% net return on the invested £192818 over a year would turn the proposed £222 gain into a possible £1706 loss.
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Anonymous | 17 May 2010 3:57 pm
But it also ignores an extra year's worth of rental income!!

Not to mention the other point that was made about indexation. If this is reintroduced then its not a flat 40% which makes it even more favourable to hold on.
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Anonymous | 17 May 2010 4:38 pm
Just goes to show....the crunching of the numbers is best left to professionals, such as IFAs and Mortgage Brokers. No more needs to be said?
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Anonymous | 17 May 2010 4:47 pm
This entire rationale appears to be based upon:- "Moore Blatch cites Land Registry data which shows that prices have risen 7.5% over the last 12 months." Has no-one ever explained to these lawyers that past performance is not indicative of future performance? UK Property price increases are pretty much now reliant upon inflation and the artificially contrived 'control' of a low interest rate environment.

It still looks like bubbling on top of a bubble to me.
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Donald Fraser | 17 May 2010 4:56 pm
The article factors in neither the negative impact of inflation indexation nor the positive of potential income (rent) from the asset if retained a further year. The detail is not as persuasive as the headline.
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Anonymous | 17 May 2010 5:31 pm
These lawyers need to stick to, and focus and what they do best, and thats not pretending to be an estate agent, mortgage broker or Barack Obama.
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david b | 17 May 2010 6:27 pm
Is the lawyer registered with the FSA to give investment advice. How can he be sure prices will keep rising when the tax cuts, spending cuts and rate rises return the economy into recession. Are we even sure prices are rising when there are so few properties changing hands??
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Anonymous | 17 May 2010 7:42 pm
And if prices have fallen by 7.5% and base rates have risen by a couple of percentage points? Will these lawyers be compensating all those who relied on their advice (Hedley Byrne) and lost out?
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