Buy to Let or Buy to Grow? – The 45% question!

05 September 2016

In what appears to either be a legislative drafting error or a carefully planned change in policy, new clauses in the finance bill seem to cause further concern amongst the buy to let market. 

Whilst there has been punitive action being taken against residential landlords of late, most recently not benefitting from the drop in Capital Gains Tax (CGT) rates from 28% to 20% for residential property, there has still been the ability to sell investments and benefit from CGT rates as oppose to income tax rates (as high as 45%).

New legislation which includes subtle changes to the existing wording is a cause for concern for investors. The new wording seems widely drawn where ‘the main purpose or one of the main purposes in acquiring the land was to realise a profit or gain from its disposal’. It would be very difficult for an investor to argue capital growth was not a purpose when purchasing their investment. When moving into low yield markets, the argument becomes even harder to make.

If this is a purposeful change and the focus changes to taxing buy to let investors 45% on sale, the goal posts have most certainly moved. It is not yet clear this is the case and we are hoping for guidance from HMRC but in the mean time, those selling residential properties previously held as investments might have more costs than they bargained for. If this is a new policy, the question begged must be, does incorporation (with 20% corporation tax) look even more attractive?

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