Buy-to-let market boost

9:38am Tuesday 22nd April 2008

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NEW Capital Gains Tax rules could save buy-to-let investors thousands of pounds and experts believe it will pick up the market.

A new single rate of 18 per cent to Capital Gains Tax for buy-to-let investors and second-homeowners was introduced on April 6, benefiting individuals, trustees and personal representatives.

The previous rate was set at 40 per cent for higher rate taxpayers who have owned their property for less than three years.

Even after a 10-year ownership of a property, the most a higher rate taxpayer could hope for is a fall to a minimum of 24 per cent.

The new rate is welcomed by property investors and will make owning property personally advantageous for many discerning owners.

Robert Fraser, managing director of Fraser & Co, a central London-based estate agent with a global reputation, said: "This additional available cash injection could potentially deliver a much needed lift to the spring property market ,with an increase in generated sales."

Alongside the change in rates, there is also a change in the indexation rule.

Indexation was an inflation adjustment to the original purchase price and enhancement costs incurred up until April 5, which may result in the cost increasing, thereby reducing the taxable gain.

A change in indexation relief will also have an impact on those who have owned the property for a long time.

It is still necessary to take into account the effect of double tax relief.

A higher rate taxpayer who bought five years ago for an average price of £123,000 and sells now for £200,000, could face a potential Capital Gains Tax bill of £22,500.

If they sold after April 5, their tax bill could potentially fall to £12,204, which is a saving of £10,296, assuming they sold the property for the same amount.

This reduced tax liability could have a positive effect on the property market as those with extra capital to invest would be more inclined to do so with the introduction of this new rate.

Fraser & Co. who have extensive experience in new developments in inner London are anticipating a huge rise in investors looking specifically at new build schemes.