Darling CGT fallacy

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    Darling CGT fallacy

    I've just read an article on http://www.thisismoney.co.uk/mortgag...&in_page_id=56 claiming that CGT currently on property is 40% dropping to 24% effectively with full taper relief on properties owned for 10 or more years. Therefore they say with the new rate of 18% from Apr 08 onwards this means sellers will only 18% instead of the 24% effective tax on property disposals. The article says:-
    "Is there any good news for buy-to-let?
    Yes, the good news for landlords is that despite missing out on entrepreneur's relief they will still gain significantly from the tax changes. The flat 18% rate of tax replaces CGT on a sliding scale, coming down from 40% for higher rate taxpayers.
    Even with taper relief the minimum tax rate on residential property is 24% until the changes come in, so those who have held properties the longest will get a 6% tax cut and those who have held them for a shorter time an even bigger break. "


    This is not the case. CGT is not currently all charged at 40%. 40% tax rate is only payable on that portion of sums above ones £5,225 personal allowance + the £34,601 limit of the 20% band, whether from earned income or capital gain. So 40% CGT has only been payable on income over £39,826. Below that the rate is 20% or less. So to claim that BTL owners will be paying at least 6% less simply is not true. At present low earners would most likely pay only 20% CGT on most or all of the gain from selling a typical property before Mar 08. Effectively just 12% with taper relief if owned for 10 or more years. This will increase to 18% from Apr 08 onwards because although that's 2% less than the standard 20% tax rate Darling is doing away with taper relief.

    This doesn't please me as I've several properties I've owned for more than 10 years.
    Any disposal made post Apr 6th 08 will now attract 18% CGT instead of the effective 12% with the old taper relief system. (20% x 60% = 12%). Taper relief was fairer because in real terms it allowed for inflation over time. For example if an asset increases by 5% per annum & inflation is 5% per annum there has been no real gain. Taper relief allowed for inflation to some extent. Any tax system that fails to do so is taking capital gains tax (CGT) on sums that in part are not real gains.

    #2
    >>Taper relief allowed for inflation to some extent


    Indexation allowed for inflation 100%. But taper turned out to be far more generous.
    The contents of this note are neither advice nor a definitive answer. If you plan to rely on this, you should pay somebody for proper advice.

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