Capital Gains Tax (or CGT for short) is a tax charged on the profit made from the sale of let property, stocks and other assets. The current rate of this tax in the UK is 18% but the new coalition government has plans to increase this to a staggering 40%.
Many landlords who invest in the buy to let property market have been forced to re-evaluate their business venture as this possible change could strike a huge dent in profit made.
An example of what difference this could make would be to look at a property purchased 10 years ago for £90,000 and sold this year for £190,000. The profit would be £100,000 and currently £18,000 would be paid in tax. This is set to change to £40,000, an extra £22,000 in this example which is a very significant amount of money that was once in the landlord’s pocket but now in the government’s pocket instead.
There are rumours that landlords are beginning to bail out now before the tax rise occurs and who can blame them? There are obviously other costs and taxes involved in the buying, selling and development of property which all eat into the profit margins.
The budget happens later this month on June 22nd 2010 when we will see if the proposed change occurs and what the future holds for the buy-to-let landlords of the UK.