Landlords & second-home owners targeted in capital gains tax reform

[j_hilton100_hotmail_com]

Has anyone seen this news article released today?

It looks like property investors are the ones who’s going to suffer the most by an increase of taxes to pay back for the costs of the pandemic. 

https://www.thetimes.co.uk/article/landlords-and-second-home-owners-targeted-in-capital-gains-tax-reform-btr6xnqjt

”Landlords, small business owners, investors and those with second homes face paying tens of thousands of pounds more in tax after a review ordered by the chancellor...

The tax is paid on the profits gained from selling personal possessions worth more than £6,000, including second homes, rental properties, company shares and business assets. Cars and main homes are exempt...

For a basic rate taxpayer, the levy on profits from asset sales would rise from the current level of 10 per cent to the income tax level of 20 per cent, while the tax on profits from second and investment property sales would go up from 18 per cent to 20 per cent.

For higher rate taxpayers it would rise from 20 per cent on asset sales and 28 per cent on property sales to 40 per cent; this would be 45 per cent for additional rate taxpayers.

A recommendation to reduce the threshold at which the levy kicks in from £12,300 to £5,000 would further increase the tax due on capital gains.”

[DotCotton]

Seems like a sensible course of action. It’s not going to be popular though 

[paulrybak]

They're determined to bankrupt small businesses and impliment the (not so) great reset. 

[T J]

This has certainly sparked some team discussions today - we'll be covering it on next week's podcast but would be good to continue to get others thoughts on this.

 

[nicholas_b]

I can't say I'm surprised... they have always wanted to dismantle and prevent small landlords, and to put them in the hands of owner occupiers... it's just whether they actually do go to owner occupiers...or whether they're snapped up by bigger private landlords...

I would be interested to see the forecast increase in CGT...to see if it is actually worth it. Not to mention what it will do to supply and demand...

[Westie92]

It would be interesting to see how this impacts 'value investing' in property, where landlords are buying city centre property and speculating on the (very likely) capital appreciation. Will there be a shift to strategies which are more yield focused? 

This tax change would certainly prompt a relink of the '1 city centre property or 2 properties elsewhere' debate. Would be great for the podcast to revisit this as I know it's something they've commented on previously.

[StephenTownsend]

The suggestion appears to be that this is going to adverseley affect all private landlors and second home owners. Surely this is only IF they actually sell a property?

That would certainly affect anyone utilising a flip strategy alongside a hold strategy, which I appreciate is most investors, but for those who are able to hold all their assets, it shouldn't affect them?

 

[kieronc]

13 minutes ago, stephentownsend said:

The suggestion appears to be that this is going to adverseley affect all private landlors and second home owners. Surely this is only IF they actually sell a property?

That would certainly affect anyone utilising a flip strategy alongside a hold strategy, which I appreciate is most investors, but for those who are able to hold all their assets, it shouldn't affect them?

 

I was thinking the same thing, one article states they intend to tax BTL landlords more. Not sure how they could do this to LTD companies without raising the tax on all LTD companies.

 

[tom_b]

Personally I feel that it may be counterintuitive. It could drive behaviours towards avoiding selling properties which may then impact on reduced sales, stamp duty revenue, reduced investment in property as a whole. All of which could impact on economic recovery. I get why they are considering this as an option given the potential revenue opportunity for the government but it just seems another shift towards targeting the profits of property investors, portfolio landlords etc. 
 

[StephenTownsend]

45 minutes ago, tom_b said:

Personally I feel that it may be counterintuitive. It could drive behaviours towards avoiding selling properties which may then impact on reduced sales, stamp duty revenue, reduced investment in property as a whole. All of which could impact on economic recovery. I get why they are considering this as an option given the potential revenue opportunity for the government but it just seems another shift towards targeting the profits of property investors, portfolio landlords etc. 
 

Combine this with the end of the stamp duty holiday and you'd imagine there's likely to be a very stagnant market.

On the other hand, what many are anticipating, as with most recessions, is people losing jobs and potentially not being able to afford their mortgages, which could put a lot of reposessions on the market.

[paulhodge]

Anyone who thinks this tinkering will make any dent in "the debt" is deluded (or fools, as Rob & Rob may say). The recent fiscal shenanigans have used covid as cover to patch-over past largess and to firmly kick-cans, maybe for decades, down the road. The fiscal stimuli, deliberately or accidentally, due to the Cantillion effect, demonstrably exponentially benefits the point-one-percent-ers.

If Rishi Sunak truly believes this fleecing of independent investors will really shift anything, other than providing a meager drip-feed of cash flow (like seeing your house burning down as opportunity to roast marshmallows), then he really is a deluded fool. I suspect Mr Sunak is not a deluded fool, more importantly I think those pulling his strings know exactly what this is about: it is about moving all yield-producing assets into the hands of big corporations and the government. They are deliberately discriminating against small landlords, ensuring that we remain part of the retail-rent-herd. Making any profit from property will become increasingly difficult (and not just in the sense that we need to "up our game").

I think there are still some gains in property, only every day it is going to get harder. Maybe we need to move into politics for the big passive income  (No cash needed, just your soul - couldn't resist that.)

[Chris Phillips]

As always, it's the headlines that grabs the attention.. I personally think it is best to keep calm and not make any hasty decisions based on conjecture. Yes there is a huge deficit that needs to be addressed, but it's the same for governments all around the world, how are they planning to recover? Or will we be like the USA where the size of the deficit doesn't seem to matter??  Let's keep our eyes open and not lose heart.  Thanks to Rob and Rob for always providing a balanced view and preventing all of the lemmings from jumping over the edge of the cliff in terror!

 

[paulhodge]

1 hour ago, stephentownsend said:

Combine this with the end of the stamp duty holiday and you'd imagine there's likely to be a very stagnant market.

On the other hand, what many are anticipating, as with most recessions, is people losing jobs and potentially not being able to afford their mortgages, which could put a lot of reposessions on the market.

I suspect no repossessions*. Following my thoughts above, I anticipate that mortgages will be taken over by the government or their proxies - facilitating the gradual shift of the housing stock into the of hands big corporations and the state. It may appear like we still own them, but for sure we'll be paying rent.

I think we are all putting too much faith in (free) markets and supply and demand - all this is being beyond-manipulated (imo ).

(*at least not so many on first-homes that it becomes politically unacceptable.)

[nicholas_b]

2 hours ago, tom_b said:

Personally I feel that it may be counterintuitive. It could drive behaviours towards avoiding selling properties which may then impact on reduced sales, stamp duty revenue, reduced investment in property as a whole. All of which could impact on economic recovery. I get why they are considering this as an option given the potential revenue opportunity for the government but it just seems another shift towards targeting the profits of property investors, portfolio landlords etc. 
 

I had the same thoughts about supply and demand.

I can't help but feel most things the govt do have adverse consequences, and often results in it being counter intuitive. The more they meddle the more negative the impact seems to be.

To me the issue is simply, supply. Most of the problems and reasons for changing everything stems from supply issues. Why dont they just make use of all the empty buildings and brown field sites and invest, to get the economy going and help solve the housing crisis they refer to.

[mark_spooner_gmail_com]

What really gets me about these discussions on capital gains tax reform is that I never see the effects of inflation mentioned at all.  Its always 'evil people who profit from X (share trading/property letting whatever society is currently being encouraged to bash without an understanding of how these practices can also be beneficial to society) getting away with not paying the same tax on  their profits as the rest of us 'hardworking folk.'  The implication is generally that the target of CGT is somehow getting a free lunch, very little consideration is given to the risks that may have been involved in their activities.   Now given I'm no economist and have no financial training and yet the first thing I think about when sale - cost over time is discussed is the effect of inflation, I can only think it is an intentional act to ignore it.  (Admittedly I have only read the brief newspaper accounts of various recent capital gains tax change proposals and maybe the actual OTS report does refer to inflation but, if so, I find it worrying that I've seen references to removing the allowances without any discussion of why they might be there.)

I'm originally from Australia where we used to have indexation relief to allow for inflation (basically take a consumer price index rise over the same period you held an asset as a discount factor).  This was scrapped in favour of a 50% discount on gains for assets held over a year to 'simplify' things - although I can't say the indexation approach was very difficult in the first place.  Surprise surprise the discounts started getting removed as being unfair.  In the UK, I'm assuming there was once an indexation relief but maybe the annual allowance took its place?  To talk of removing the annual allowance or taxing gains the same as income and totally ignoring the effect of inflation is very unfair.  Income is taxed on a yearly basis, money earned at points during the year probably doesnt need any inflation consideration.  When houses (or shares) are held for the long term, potentially decades, being taxed on the effects of inflation and treating gains as profits although the amount received at the end may have less purchasing power than the original amount invested is wrong.  No doubt governments will be considering financial repression as one of the approaches to deal with the debt burden so an early attack on capital gains tax is a worrying sign!

 

 

[paulhodge]

1 hour ago, chris phillips said:

Yes there is a huge deficit that needs to be addressed, but it's the same for governments all around the world, how are they planning to recover?

 

Hi Chris, apologies for jumping on this - but to reiterate on my tirade, (imo) no debt is ever going to be addressed: nations have used covid to patch-over decades of government and private overspending, possibly the worst of it being the debt bundles that continually get repackaged and resold. This is how entities (or is it geniuses) like Bezos, Dimon and China have built empires at the expense of individuals, the mom-and-pops businesses. Don't be fooled by "austerity measures" or this new "tax on the wealthy (that's you and me) to fill loop-holes and repay Covid" - it's all window dressing  The can that's been kicked by national governments is at best is waiting for an economic miracle combined with retail inflation and continued (official) deflation.

[Julia Urquhart]

It is particularly harsh since taperr relief was abandoned so there is no thought given to whether you have made £50k over 1 year or 10 years. Given that with property you can only sell in complete units, not in bits at at time, it is very harsh that no thought is given to the length of time it has taken to make that profit (usually made by investing cash that has already had tax paid on it!).

I don't think the revenue paid will make a dent in the debt at all - it is just an excuse to make alterations to a tax system that currently allows people who make money to keep it. The fact that we already pay higher rates on houses than on other asses shows that this is a direct attack on property owners.

Unfortunately the Govt is in danger of killing the goose that lays the golden egg - if all our profits are taxed away what incentive is there to continue in the PRS? And if we don't where we all the renters live? Taxing our profits does not suddenly put a deposit in renters hands and as someone has already suggested, our properties will be more likely snapped up by big faceless LLs not by home owners.

 

[Bob Smith]

All these taxes that started with Dave Cameron mean the elite do not want to share the property market with the normal guys or neighbours next door. It will stop anybody trying to get on the BTL ladder and keep the house market to the riches. Sad. By portraying landlords as monsters, it will only go back to where properties were neglected by rich landlords who are too remote to care about tenants problems. 

[nicholas_b]

10 minutes ago, bob smith said:

All these taxes that started with Dave Cameron mean the elite do not want to share the property market with the normal guys or neighbours next door. It will stop anybody trying to get on the BTL ladder and keep the house market to the riches. Sad. By portraying landlords as monsters, it will only go back to where properties were neglected by rich landlords who are too remote to care about tenants problems. 

I agree. The standard of the PRS sector where I live is amazing. The standard of the accommodation is brilliant. These are by small time landlords who want to make a few pound over time, usually as a pension fund, and give someone/ a family somewhere nice to live.

When I read and delve in to the history of the PRS in decades gone by, it appeared to be horrendous, not just the infamous terrible landlords, but even looking at things like student digs etc. The standard is really high now, it frustrates me the 'horrible landlord' tag, because its untrue, not to mention the bias. Eh well, we will just have to adapt, and look at new strategies... either that or vote for the Robs as PM and Chancellor... 

[tom_b]

Or, we could all club together and buy Carrie (current acting PM) a present and try and influence decision making at the highest level. It seems to have worked for others recently! ;) 

[paulhodge]

Hello yet again, just thought I'd shout out the Grant Williams podcast for anyone who has not caught it and is willing to go full tinfoil hat - two November interviews,

The interview with Chris Cole is all about the thin ice we may be skating on. There is a big argument to just keep on skating, and hope the ice never cracks – however thinking about what lies beneath is definitely creating massive investment paralysis for me.

The one thing I felt was missing from the Chris Cole interview was the idea of disturbance beyond the fiscal. This is made up for in the preceding interview with Ben Hunt. All I can say is if you think average Chinese person is uniquely predisposed for a century of 1984-big-brother-style subordination...

[paulrybak]

In my opinion this whole covid thing is a total over reaction driven by the greed of big corporations who have inched their way into the ears and pockets of governments on a global scale. The WEF are unashamedly using covid as a trigger to impliment their 'great reset'. 

https://www.weforum.org/agenda/2016/11/shopping-i-can-t-really-remember-what-that-is/

Sky news Australia sum it up well:

I believe their plan is to create so much debt that there will be some sort of debt cancelling scheme, where government debt is cancelled in return for the global elite taking control of assets and people. 

There's no way that so many countries would all get their responses to this so wrong and in such a coordinated manner. 

Anyway I've said my piece, call me a conspiracy theorist or whatever but please do your research on this and don't just take my word for it.