View more on these topics

Lawyer warns against selling homes due to CGT hike

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.”

Recommended

Lender service has not improved in 34 years as an adviser

I feel compelled to vent my spleen with what I’m sure is a like-minded audience on the familiar subject of lender service. In 34 years of writing mortgage business I have to say that the standard of service offered by lenders at the moment is at best rubbish and at worst insulting. I am not […]

Shaken consumers keep faith with independent advice

The banking crisis has damaged borrowers’ confidence in their ability to get the right mortgage but they still have faith in independent financial advice, research carried out on behalf of Kensington shows. Nearly half of respondents – 44% – say they have less confidence in their own ability to get the right mortgage product for […]

Parental leave and pensions

Fiona Hanrahan  – Senior Product Insight and Technical Support Analyst We are often asked how parental leave impacts workplace pension schemes in terms of funding in general, auto enrolment and salary exchange. This article will explain each of these. How does parental leave impact the funding of workplace pension schemes? A member of a defined […]

Newsletter

News and expert analysis straight to your inbox

Sign up
Comments
  • Post a comment
  • John Stirling 18th May 2010 at 12:23 pm

    Ignoring the transaction costs, (even including the transaction costs, but less compellingly), surely the ‘best’ answer is to dispose now, buy next door, and use two sets of allowances, and crystallise most of the gain at 18%.

    Unfair assumption of an equivalent property? Well yes, but considerably more likely than a 7.5% increase over the next 12 months….

    Grr, this article is less informed than ‘the man in the pub’

  • Clive 17th May 2010 at 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?

  • david b 17th May 2010 at 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??

  • Mortgage Broker N3 17th May 2010 at 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.

  • Donald Fraser 17th May 2010 at 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.

  • Bink286 17th May 2010 at 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.

  • Paul Harris 17th May 2010 at 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?

  • Louie 17th May 2010 at 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.

  • Mark Sutton 17th May 2010 at 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.

  • Mike LeGassick 17th May 2010 at 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.

  • Jon 17th May 2010 at 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