Capital Gains Tax‏

Lincolnshire property auctioneers JHWalter are anticipating a busy few months as people rush to put their properties and land up for sale to avoid having to pay thousands of pounds in tax.

In his pre-budget report the new Chancellor Alistair Darling announced plans to introduce a flat rate capital gains tax (CGT) of 18 per cent, replacing the current 'taper relief' which sees the tax rate diminish over time.

According to Kate Russell, a Chartered Surveyor at JHWalter, the new rate which will come into force from 6th April next year will save some people thousands of pounds but cost others thousands more.

Kate explained: "CGT is a tax on capital 'gains'. If when you sell or give away an asset it has increased in value, you may be liable to tax on the 'gain' (profit). This doesn't apply when you sell personal belongings worth £6,000 or less or, in most cases, your main home.

"If you are selling assets which have not been used in a business, or you have not held them for very long, the new system could save you thousands of pounds. However, if you have held assets for a long time or they have been used in a business then the new tax regime may cost you considerably more."

She continued: "Time is running out to take advantage of massive savings on tax and we expect to see a flurry of properties being put up for sale before the April deadline. We have scheduled two further County Property Auction sales before April to accommodate the expected rush. My advice to anyone considering a sale would be to take advice from an accountant as soon as possible to make sure that they are a winner and not a loser in the tax stakes."

The next County Property Auction is being held at the Bentley Hotel, Lincoln on Thursday 29th November at 11am.

Examples of Savings

Example A: non-business asset

Annabel bought a buy-to-let property five years ago for £80,000. She is considering selling it now to free up the capital and the current value is £140,000. If Annabel sells before 5th April 2008 she will pay tax amounting to £20,400. If Annabel waits until after 5th April, she will pay tax at a flat rate of 18 per cent, resulting in a tax bill of £10,800.

Annabel will save £9,600 of tax by waiting until after 5th April to sell her property.

Saving: £9,600

Example B: business asset

Bill is a developer who bought a development site 18 months ago for £120,000. He has now obtained planning permission and the value has increased to £250,000. Under the current system, Bill would pay tax after taper relief of £26,000. If Bill waited until after 5th April, he would pay tax amounting to £23,400.

Saving: £2,600

Example C: non-business asset

Claire owns a 10-acre paddock which she inherited many years ago. Its value in 1982 was £1,500 per acre and it is now worth £5,000 per acre. It is not used in a business. If she sold the land after April 2008, the tax bill would be £6,300. If she sells her land before April Claire would pay tax amounting to £5,020.

Saving: £1,280

Example D: business asset

David owns land very similar to Claire's, but his land was used in his farming business. Its value in 1982 was £1,500 per acre and it is now worth £5,000 per acre. If he sold the land after April 2008, the tax bill would be £6,300. If he sold the land before April David would pay tax amounting to £1,930.

Saving: £4,370