CGT tax on sale of property.
I wonder why that we are so complacent about CGT on sale of investment properties ? Members often ask questions on the best way they can minimize the CGT they have to pay on the sale of a investment property, but there seems to be little, if none at all objection to the fairness of the tax ? We all just seem to accept it.
Is it not an issue that we should be challenging and asking the government to be more reasonable?
I must clarify that I am speaking about a particular aspect and this is the sale of a property and using this to reinvest in buying another one.
For example: Mr Smith, a motor mechanic (sorry,engineer) buys a garage premises so he can carry out his business of repairing motor vehicles....he does well and gets a good reputation, in fact he is doing so well he soon finds his little garage is no longer big enough and he is having to turn away business. He decides he needs a bigger premises and it so happens there is a bigger garage up for sale nearby. He paid £100 000 for his little garage but over the four years he has been in business he is happy to find his garage is now worth £150 000 and he puts it up for sale and is lucky to find a buyer quickly and uses all the money on the sale plus some finance to buy the bigger garage. Because he is selling a business 'asset' and using all the proceeds to buy another 'asset', Mr T of the HMRC leaves him alone for the £50 000 profit he made on the sale of his garage CGT purposes. He can use all that juicy profit towards the purchase of the bigger garage. Lucky Mr Smith.
Whereas, Mr Jones a retired motor engineer finds he is bored stiff and decides to venture into 'Buy to Let' investment. After all his other cash investments are not even keeping up with inflation. He cashes in his investments to buy a nice Victorian house in a nice leafy suburb of Henley-upon-Ooze, spends 20k into refurbing and splitting into lovely little studio flats. He is selective in his tenants and is a great landlord - because of this he has few voids and does well with his investment. He enjoys managing the property, gets him out of the house doing the repairs and maintenance and chatting with his tenants. In fact he really enjoys it and when the much bigger property next door to his comes up for sale he thinks 'I could do the same with this property as I have just done with this one, and I will have a lot more tenants to chat with !' So he speaks to the estate agents, views the property and puts in an offer which is accepted. He has to sell his first investment to help towards the purchase of the new house. He bought the first house for £100 000 and spent £20 000 refurbing and splitting it. He is happy to find it is now worth £200 000 because of the income from it and the fact there are good tenants in situ he finds a buyer quickly. Happy days. He has now £200 000 towards the purchase of the new house..........or has he ? Much to Mr Jones shock he finds the government want a big chunk of the profit on the sale of his property. They generously allow him relief on the money he paid on the refurb costs plus a little annual allowance. But he argues 'I am using the proceeds to buy another property' . Tough, says Mr T of the HMRC, does not matter whether you are buying another property, buying a yacht, a Rolls Royce, frittering it on loose horses, or whatever, you have to pay the CGT ! Unhappy days !
Apparently Mr Jones property is not classed as an 'asset'. Should we not be fighting tooth and nail to get this changed ? I am sure there must be other landlords who have found they cannot 'up scale' to larger properties or properties in another area because they have to pay the CGT. I feel we should be asking that should we want to use the sale of an investment property towards purchasing another investment property then we should, like a business asset, be able to have the 'Roll over relief' on a similar footing to that which businesses enjoy.
Am I alone in this?
Want to read more?
This is a members only forum, if you want to read more you need to login to your membership, if you are not a member, click here to join.