In this article, Anthony Clay from Fine & Country summarises some of the opinions that have been expressed in the financial pages in recent weeks:
Whether you are contemplating selling your private house or part, or all, of a rental portfolio, one of the key issues in your decision is getting the timing right. This is not only to take advantage of current trends in the market but also of current tax breaks and to avoid potential future tax increases.
We have experienced an astonishing boom in the market in recent months and, at the moment, this shows little sign of abating. Perhaps then, this is an appropriate time to consider property disposals? Activity levels are high and prices have strengthened noticeably over the summer. There may, however, be other reasons that could influence your decision
There has been much speculation in the financial press in recent weeks of how the Government may choose to deal with the unprecedented growth in the National Debt. One obvious solution may be changes in taxation affecting the sale or transfer of residential property.
It is estimated that the value of residential property in the UK, net of mortgage debt, is in the order of £5 Trillion. Wouldn’t you say that this was a potentially attractive target for increases in tax revenue?
There are three areas where changes in taxation levels might obviously impact property owners:- Capital Gains Tax, Wealth Taxes (including Inheritance Tax), and Council Tax. Despite manifesto promises the unexpected financial impact of Covid 19 means taxes will almost certainly rise in some form.
Tax on capital gains (CGT) is currently 18% or 28%, and could possibly rise to 40% or 45%. Main residence relief is one of the most generous reliefs in the UK’s tax system, allowing homeowners to make tax-free capital gains when they sell their main home. In a move that could be seized on by both main parties searching for fresh ideas, The Social Market Foundation’s latest report suggests the Treasury could raise £629 billion over the next 25 years by imposing a new “Property Capital Gains Tax” on all homes sold in the UK. The tax, which if set at 10% of the increase in the value of the property since it was last sold, could raise so much money that it could help abolish stamp duty and inheritance tax on property, leaving the chancellor with £421bn to repair the public finances.
Critics have long argued that IHT is an optional tax which can easily be avoided by astute financial planning. It is unlikely that the 40 percent rate of IHT will be increased, as this is one of the highest rates in the developed world. One of the key areas of the present IHT system under risk is the ‘seven-year rule’ for gifts — known as the potentially exempt transfer rule for gifts — and this could be abolished and replaced with a lifetime gift allowance.
Council Tax is probably the least popular of all taxes and the easiest to levy. A re-valuation with additional bands could prove to be particularly uncomfortable, especially outside of the south-east where salaries and disposable incomes are under greater pressure. Some of this additional income could be diverted to central government.
So, quite on top of the normal desires to upsize/downsize or relocate your main residence, there may well be a number of very good reasons to think about selling your property now. For investors planning to sell assets to raise capital or boost a pension, they may well be advised to get on with it immediately. With larger rental operations, assets could be transferred into a limited company perhaps. And if one is planning to be generous to the children, make the most of the seven-year transfer rule. Remember, hope for the best but prepare for the worst.
If you would like more advice on how and when to sell your property, reach out to our team at Parrys Fine & Country.