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Tax burden for UK landlords halved by CGT reform

Landlords who waited to sell their buy-to-let properties until the second quarter of this year halved their tax bill compared to those who sold before capital gains tax reform.

According to research by The Mortgage Works, landlords who sold their properties in Q1 2008 faced high capital gains tax charges – £30,597 on houses and £30,241 on flats which, alongside cumulative income tax over the five year period – £4,298 houses and £4,362 flats – created a total tax burden of £34,895 on houses and £34,603 on flats.

In comparison, landlords who sold their properties in Q2 of this year, after CGT reforms saw a flat rate tax of 18% introduced, saw their tax burden fall by just under a half for houses, to £16,581, and just over a half for flats, to £15,975.

The Mortgage Works managing director Andy McQueen says despite recent economic conditions, the buy-to-let market remained active and landlords remain vigilant.

Figures from the Association of Residential Letting Agents’ measuring landlords’ desire to sell property also indicate that landlords continue to monitor a variety of market factors carefully when handling their portfolios.

While the percentage of landlords who said they had intentions or expectations to sell property jumped from 13.8% in December 2007 to 18.1% in March 2008, possibly in anticipation of the CGT changes, it fell way back to 7.3% in June 2008, suggesting landlords were choosing to bide their time in a market of falling house prices.

McQueen says: “Good buy to let investors always treat their property portfolios as a long-term investment, and the ARLA figures show that contrary to having to offload properties, many landlords are choosing to hold onto their investments until house prices begin to either stabilise or increase.”

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