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It’s been discovered that a Capital Gains Tax measure buried in the small print of the Budget is likely to hit companies that own buy to let properties.
Currently individuals who own second or subsequent properties - for buy to let or other purposes - pay 40 per cent CGT on the total the property appreciated when they come to sell it. Companies, on the other hand, have been allowed to deduct the amount of that price rise that was due to inflation.
The BBC gives the example that if a flat was purchased for £100,000 for the purposes of letting out, and was 10 years later sold at £200,000, the individual who owned it would have to pay £40,000 CGT - that is, of course, 40 per cent of the £100,000 profit.
However, if a company purchased the same property for £100,000 and inflation had been at three per cent for that 10-year period, inflation would have accounted for £34,000 of that price rise.
Then the company would only pay 40 per cent CGT on the rest of the rise - so it would be 40 per cent on the remaining £66,000 price rise. Therefore in that case the CGT would be £26,400 rather than £40,000.However, the BBC reports that it now appears that from January 2018 that discrepancy will be eliminated.
The change will only affect price rises from January of next year, so companies will not pay extra on the gains they have already made.Full/source article From the Telegraph:Full/source articleRound up of Budget 2017 topics:Stamp Duty surprise - What to make of it? The Budget and Universal CreditI don't think we will see a "housing crash" My Personal view of the Budget by Dyslexic LandlordRental demand after budget
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
There you go making operating as a corporate LL in the SE not worth it
Most of your gains will be hit
So being a S24 LL might be a better option to retain the CGT relief
This is a sort of cleverly hidden S24b
So Northern LL incorporate
Southern LL deleverage to reduce S24 liabilities but stay as sole traders to attain maximum CG
It has just made the corporate or sole trader calculation a whole lot more complicated!
They have removed a tax releif, that you would not get in personal name anyway.
Not sure how it makes LTD CO BTL "not worth it".
I also think the maths in the article are off.
_________________________________________________________________________The above post is not financial advice, its often me rambling - passing time on a coffee break.If you are looking for the Best BTL Mortgage? Call the Specialist Team at Bespoke Finance._________________________________________________________________________
If second properties are held as a sole trader, I thought the CGT was 18% as a LRT, or 28% as a HRT was payable on sale.
Are you saying it's now 40%?
Couple of points
Companies pay CGT at corporation tax rate not 40%.
Individual would deduct allowance (£11300) from gain and pay at 28%on balance.
This is incorrect in so many aspects it's scary. If you own BTL in your name then CGT for property is either 18% or 28% depending on your tax rate.
If you own property through a company then there is no CGT. You pay corporation tax on your profits at the prevailing rate (currently 19%). Where the change has happened is that companies used to be allowed to index the property for inflation and from January that will not be allowed. Therefore they will pay corporation tax on the total gain (no CGT payable whatsoever).
Thank you Paul, that's what I thought. Vanessa got me worried for a minute that I'd missed something!
I thought that the indexation would still apply up to next January, but any gains attributable to inflation beyond that point would not be factored in to the CGT calculation for companies. In other words, the indexation figure would be frozen at that point.
It was Landlord Today and the Telegraph who got people worried, not me. How can two reputable publications and Blick Rothenburg accountant get it so wrong?!
No idea V, but I hope they are!
IHT IS 40% regardless of other income after tax allowance deductions.