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Tax Changes Set To Benefit Property Investors, Say Rock

Chancellor Alistair Darling’s changes to the capital gains tax regime have been welcomed by Kingston upon Thames-based Rock Financial Consultants as good news for buy-to-let landlords and investors.

On January 24, Mr Darling confirmed plans first outlined in his October 2007 pre-Budget report scrap taper relief on capital gains tax (CGT) from April 2008. Currently, someone selling shares or a business they have owned for more than two years pays CGT at 10 per cent on profits above their £9,200 tax-free allowance, instead of at 40 per cent, assuming they are subject to the higher rate of personal tax.

For non-business assets, such as buy-to-let properties, taper relief is less generous, though still useful. Available once the property has been owned for three complete years, after ten years’ ownership the owner currently pays tax on the profits above the tax-free allowance, at a maximum rate of 24 per cent.

Mr Darling has now confirmed that he will levy CGT at a flat rate of 18 per cent and to scrap the indexation allowance, which inflation-proofs the rise in value of an asset bought before 5 April 1998.

David Carter of Rock Financial Consultants said: “This announcement is welcome news, as it ends several months of uncertainty while Mr Darling finalised his proposals.

“Buy-to-let landlords and investors will certainly benefit from the 18 per cent flat rate of CGT. For example, someone who bought a buy-to-let flat for £200,000 which they sell within three years for £250,000 would currently pay £16,320 in CGT, after deduction of their annual CGT allowance.

“But under the new rules, from April the taxman will collect only £7,344 – a saving for the investor of nearly £9,000.”

The Chancellor will also introduce a new “entrepreneurs’ relief” – a ten per cent rate on gains of up to £1 million accumulated during an individual’s lifetime – from April 2008. The announcement followed widespread opposition from the business community, which regarded his pre-Budget proposals a disincentive to enterprise and a serious blow to small business owners planning retirement sales. The entrepreneurs’ relief does not however apply to buy-to-let businesses as these are not currently classed as business assets.

David Carter added: “CGT is complex area and anyone considering the sale or purchase of a buy-to-let property or other property investment be wise to seek the advice of a qualified professional in exploring the most beneficial tax options.”

For more information contact Rock on 020 8939 8300.