So, can you talk to me a little bit about capital gains tax because this is something I know
very little about so I'm interested to know how that works?
Yeah, so it's another tax. Oh my god.
And I'm like tax lady, aren't I? You are, you're like the bearer of great news
today. So, capital gains tax is basically payable
on disposal of an asset. So for the purposes of this discussion it would be, if you were
to sell a property. And in general, it's the difference between the amount that you paid
for the property and the amount that you sell it for. That difference is the gain.
I see. Okay, now you can reduce the gain by taking
into account renovations and money that has been spent on the property. Straightforward
decoration, you can't really use. Yeah.
But, for example, if you put a third floor into a two-story house or you built an extension,
the cost of that can reduce the amount of gain that you have made. However, that gain
then is assessed against your annual capital gains tax allowance, which at the moment is
11,300 pounds. So if the gain is more than that amount you would have to pay tax on it.
Okay, that's good to know. Those profits are going down, down, down.
Absolutely, absolutely. Well that shows again, another one of the
experts who I was talking to in finance was saying about how important it is to look at your
own individual circumstances and make sure that you're looking at cash flow strategies
so that you're protected and you've got a bit coming in that's going to see you through
these turbulent times. Yeah. I was actually told recently, I was
talking to an accountant recently, because normally with capital gains tax what would
happen is you would declare it on your self-assessment return, if you were an individual with a gain.
And declare that to HMRC after the end of the tax year in which the gain has fell. The
difference actually now with buy to let properties is you're expected to declare that return
within of three months of it happening or declare the gain within three months of it
happening, in which case the chances are then you're going to be getting a bill to pay if
you are liable for capital gains tax. So, for example, if an investor in stocks and
shares, for example, made a gain they wouldn't be declaring that gain until the end of the
tax year in which it fell. Yeah.
It's different for a buy to let property or property investment. It has to be declared
much earlier. Wow.
And so the other difference with capital gains tax for properties ... We've actually just
had a CGT reduction, so for most of the forms of assets the basic rate of capital gains is
charged at 10% - with - if you're a higher rate tax payer it would be charged at 20%. But
actually that is a reduction on what it used to be which was 18% and 28% respectively,
which has been kept in force if the gain has come from selling a property.
Okay. Totally fascinating stuff and it makes me think so much about the due diligence process
for new investors that are coming into the marketplace and people that are excited to
come in to buy to let who might not be aware of all of these other considerations now,
that it's not the same marketplace as it was maybe five or ten years ago and you can really
get yourself into some not just financial trouble but legal trouble and all sorts of
trouble if you're not properly educated about these types of subjects.
Yeah, absolutely. It's very true that it's a different landscape. Very, very different.
But I think one of the biggest things to be aware of is not always taking the, "I can
do it myself" approach. I've worked for 20 years in financial services. There's a lot
of clients who I know are very astute in business, they have a plan and they know what they want
to do, and I think if you're a property investor or developer you generally see a vision and
you know where you want to get to. But it's really important not to always think, "I'll
just do it myself." Because a quick Google search is going to throw up a lot of different
facts and figures, not all of them are going to be absolutely current.
The thing about tax and regulation is they can change with any budget that comes in.
And I think this tax year we're about to have three. So these things change all the time
and I think that if you fall foul with HMRC on reporting then obviously that's going to
cause you problems, but if you don't budget in your plan to pay potentially CGT, extra
stamp duty, those sorts of things, then it can quickly turn a project from being on-budget
to out of budget. Yeah, profit to loss. Wow, it's absolutely
fascinating. I think you're the only person who would say
tax is fascinating, but that's okay. It is so interesting to learn from a different
angle. I obviously work in a niche area of property so this is so interesting because
you're hearing so many arguments and so much confusion. So, it is for me very fascinating
to sit here and get the information from the horse's mouth and get the correct information
too. Thank you for watching this video. If you
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