Captal Gains Tax increase

Most of us know that in each tax year we are given a personal allowance of £10,100, if profit exceeds this amount then the current Capital Gains Tax (CGT) rate is currently 18%. Before April 2008 the CGT rate was as high as 40% so many people have benefited from the decrease down to 18%. There are many things you do not have to pay CGT on such as your car, some gifts and your first or main residence.

It was recently announced that CGT is expected to go up again to the previous 40% threshold; this will affect many people but may strike the hardest for people who own two homes or more. At the moment the housing market has stabilised with many homes being put on the market everyday and since there are not enough buyers to go round at the moment the housing marking is being given a big boom. If CGT increases then the housing market will crash again as many investors and second home owners will be in a rush to sell to avoid the 40% tax they will need to pay to the taxman.

It looks like CGT will go up but not until the next financial year of 2011/12 when this happens there will be too many houses competing for buyers and will therefore cause another crash in the housing market. Unfortunately there is nothing we can do to escape paying 40% on CGT but there are ways to not pay temporarily.

Avoid paying capital gains tax

  • You can sign over property to a spouse or civil partner as long as you are married and living together
  • You can also sign over property to a family member or ‘gift’ it to your children

These are both popular methods used by people when it comes to avoiding CGT on property, this is a temporary method as the asset has been signed over but CGT will still need to be paid at some point. When the asset is signed or handed over the new owner will need to pay CGT when they come to sell.

So whether you choose to sell your second home or not CGT will still apply, some people might hold off their plans for selling to see if the threshold will go down again in a few years. In the mean time there is no need for panic neither is there the need to start an influx of selling off property either. The best thing to do is to wait and see what happens.