News of an increase in Capital Gains Tax has placed an unexpected amount of concern on the faces investors across the UK. There in, recent reports from the financial sector are displaying signs of a potential rise in the rate of tax that second house owners and large higher income tax paying investors could face, causing an issue for potential landlords around the UK. Experts in the field has issued advice to investors to avoid a weighty tax burden by restructuring their property portfolios and selling off assets before the April 2011 deadline where the supposed increase will take place.
The professional advice issued to many investors is to invest in other asset classes to ensure a lower impact on the amount of tax and duties they will have to pay. In worrying times like these, any extreme changes could cause further rifts within the already fragile state of local markets. There are talks of tax increases making property investment an unfavourable and potentially less tradable route of investment. There could be a knock on effect of this lowering the number of second home purchases after the start of the new tax year in 2011 which may or may not affect residential landlords at this moment in time.
The general consensus is not to start panicking as the majority of residential landlords and those with buy to let mortgages shouldn’t be affected as much as larger, more profitable investors. The last thing the new government wants to do is to worsen the current state of the housing market, where letting agents are currently crying out for small homes, flats and apartments. The news is though that ancillary buildings and property located within the grounds of a house, such as staff accommodation and flats, lodge cottages and possible development plots located on premises in garden areas are all going to be kept under a watchful eye and quite possibly scrutinised if it is shown that they are not in keeping with the requirements of the main house or residential property.
So bearing in mind that the smaller landlords and buy to let investors take adequate steps to carefully manage their approach to maintaining their investment, the news is that you shouldn’t worry. Obviously any tax hike will mean less revenue in the short term, if you let to DHSS tenants, there is a chance that your fees will be increased or you can request an increase to combat inflation. Raising residential private rental rates can also reduce the impact of the rise in capital gains tax but there is a fine line to keep good tenants from leaving you in search of more affordable accommodation.
With many new proposals from the government on how they plan to proceed, we can expect some fluctuations within the economy. One thing is for sure is that many minds are very interested to see what methods are to replace the past indexation or taper relief systems that have previously been in place, to prevent landlords, buy to let landlords and second home investors succumbing to having to pay a tax on inflation.
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