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Casual Articles - Capital Gains Tax (CGT) - UK Landlords
After watching the massive wildfires in the Western United States over the last five years it appears that more public relations is needed to prevent folks from doing rather stupid things like tossing their cigarette butts out the window of their cars while driving. After all after wet seasons of robust under brush or weeds and grass build up and then severe summer droughts, there is more than enough dried brush fuel out there.Smoky the Bear was a great public relations campaign, but it is not taken seriously enough with the older crowds any more and this is why a new public relations campaign nationally as well as local community goodwill programs are needed to remind people out there.So, how can fire protection services develop a good public relations program for their local area? The answer is relatively simple and it would seem that fire protection services must stay in the minds of the people when they are out and about. It must also reach them in their homes so that they are sure to consider the importance of weed abatement programs and clearing the dry brush away from their homes.But it is more than that and it takes a concentrated effort and a serious look at public relations strategies. If a public-relations strategy for a fire protection service fails the repercussions and potential challenges down the road could be tenfold. Please consider this in 2006.
It all seems fairly straight forward up to now!? However, just to make things a little more interesting, the Revenue have two minor complications called Indexation Allowance and Taper Relief.
Indexation
Indexation, which was effectively replaced by Taper Relief in 1998 was used by Government to account for inflation in the calculation of CGT. Therefore, where a capital gain was made, it allowed a proportion of the increase to be deducted.
This practice reflected the time when inflation alone would have resulted in large increases in capital value. It should also be noted that indexation relief may only reduce or extinguish a gain; it cannot convert a gain into a loss or increase a loss.
The calculation of the indexation allowance commonly called the ‘indexation factor’ is made according to the formula given below and rounded to three decimal places. The RPI or Retail Price Index is simply a measure of the price of goods and services produced by the Government’s Office for National Statist
If there is one tax that drives people nuts, it is the alternative minimum tax. Ironically, it may be the one piece of the tax code that forces a complete re-writing of the tax code.The alternative minimum tax was created in 1969. The goal of the tax was to prevent ultra rich individuals from avoiding paying their fair share of tax revenues through various strategies put together by a herd of tax lawyers and accountants. Well, it worked. There was one problem, however. The alternative minimum tax now captures many middle class individuals as well. This has caused a rather major problem for politicians who hear about it from their constituents on a regular basis.The alternative minimum tax is undisputedly a bad piece of tax code. The sheer stupidity of the tax is shown merely be how a taxpayer determines if it applies to them. Instead of running your finances through a simple worksheet, you have to do your taxes twice. In one version, you prepare a normal tax return. In the other, you return the alternative minimum return. If you are snagged by the tax, you then pay whichever approach results in the government getting more of your money. Ah, the government at work.Given the nightmare of the alternative minimum tax, why hasn’t it been repealed? Well, there is one basic reason. It now brings in massive tax revenues to the government. If repealed, the government would lose all that income. Considering the massive budgetary debt we already have, it is a difficult issue to say the least. One proposal is to do away with the tax and replace the lost revenue by raising other taxes. As you might imagine, taxpayers are very cool to this proposal.Perhaps the most ironic thing is the alternative minimum tax may ultimately become the spur that kicks off a complete re-writing of the tax code. There is no simple way to address it given the way the current code is written. If it is going to be changed, the tax code as a whole probably is going to need to be tweaked. This will raise issues of how exactly we should be taxed as a society. Included in those discussions will be national sales tax and flat tax proposals. Whil
Base Costs
First of all, before deducting your allowances you will need to establish the Base Cost of the property. To establish the Base Cost additional costs need to be added to the initial acquisition costs (or where the property was acquired prior to 31st March 1982 the market value on that date which ever is the higher – a process known as rebasing). These are:
* Incidental costs of acquisition (e.g. legal fees, stamp duty, etc).
* Enhancement expenditure (e.g. the cost of building an extension to a property).
* Expenditure incurred in establishing, preserving or defending title to, or rights over, the asset (e.g. legal fees incurred as a result of a boundary dispute).
The initial capital gain is then calculated by taking the Base Cost from the sales price.
EXAMPLE Tom bought his bungalow in July 1995 for ?50,000. He paid stamp duty of ?500, legal fees of ?350, mortgage broker’s fee of ?250 and removal costs of ?535. The place was in a bad state of repair as an elderly couple had lived in it previously. Therefore, it needed complete modernisation. These works cost as follows:
1. redecoration ?2000
2. new kitchen ?5000
3. new bathroom ?3000
Not content with this upgrading work for his tenants. Tom’s next project was the erection of a shiny new conservatory to house his tenant’s collection of carnivorous houseplants. This cost him an additional ?15,000 (comprising of ?14,000 construction cost and ?1000 design and building regs fees).
However, in his enthusiasm to secure the maximum floor space. Tom built very close to his neighbours Jerry’s boundary. Jerry was a little jealous of Tom’s magnificent erection and aggrieved that it had crossed onto his boundary. He instructed his solicitor to send a letter threatening legal action to have it removed. Tom contested this and after Tom had spent ?500 on legal fees, Jerry dropped his action.
In 1999 Tom suffered damage to his weather vein of ?500. He secretly suspected that it was malicious damage by Jerry but was unable to proof anything. When Tom tried to claim for damage to his weather vein, the insurance company refused to pay out, stating it was storm damage and classed as an act of god not covered by his policy.
In 2000 fed up with Jerry’s constant agitation. Tom sold his bungalow for ?125,000. How much was Tom’s Base Cost for CGT purposes?
ORIGINAL COST ?50,000
Incidental cost of acquisition ?1000 (legal fees, stamp duty and mortgage broker’s fee). The removal costs were a personal cost and not part of the capital cost of the property.
Refurbishment works
?10,000 classed as enhancement works & therefore a capital cost Building of conservatory
?15,000 also classed as enhancement works & therefore a capital cost Legal fees defending title to property ?500 contesting boundary with Jerry
TOTAL BASE COST
?76,500
Annual exemptions
The personal allowance allows each individual to make a certain amount in capital gains each year without having to pay CGT. These exemption changes every year. In the tax year 06-07 it was ?8,800. Unfortunately, this exemption only applies in the year of disposal of the asset. Unused balances from previous years cannot be carried forward.
In addition to the annual CGT allowance there are a number of expenses and deductions that can also be taken into account to reduce your potential liability. Some of these are used to generate the Base Cost as previously mentioned. Expenses that are deductible are:
* the costs of acquisition such as solicitors fees, mortgage brokers fees, etc
* money spent on the property, including renovation and improvement costs
* the cost of disposal such as estate agents, solicitors, advertising. Remember not to get caught double counting the costs you may have already included under Schedule A as a repair.
It all seems fairly straight forward up to now!? However, just to make things a little more interesting, the Revenue have two minor complications called Indexation Allowance and Taper Relief.
Indexation
Indexation, which was effectively replaced by Taper Relief in 1998 was used by Government to account for inflation in the calculation of CGT. Therefore, where a capital gain was made, it allowed a proportion of the increase to be deducted.
This practice reflected the time when inflation alone would have resulted in large increases in capital value. It should also be noted that indexation relief may only reduce or extinguish a gain; it cannot convert a gain into a loss or increase a loss.
The calculation of the indexation allowance commonly called the ‘indexation factor’ is made according to the formula given below and rounded to three decimal places. The RPI or Retail Price Index is simply a measure of the price of goods and services produced by the Government’s Office for National Statisti
The message is determined by analyzing the brand being marketed, and doing so with clear vision and self-knowledge. Too many marketing executives rely on their own concept of the brand's identity, and never bother to discover what attributes the public has assigned to a product. Just because you've decided that you want to project a certain image doesn't mean that's the image you're projecting. Extremely high-profile marketing campaigns have failed because not enough market research and communication with the consuming public were done.For example:When AT&T Wireless decided to consolidate its wireless phone, pager, and Internet technology into something called mlife, it gave the public examples of what the company meant. Unfortunately, the public still doesn't understand, and has no idea what the m stands for (it is messaging).United Airlines has long invited the public to "fly the friendly skies of United." The public has noticed that the experience on the plane is not terribly friendly, and is now distrustful of all airlines' claims.The criteria for effective public relations messages should be: (1) is it true? (2) Is it unusual? (3) Is it interesting?On the other hand, if a company already exists in the marketplace, a new message will have to be identified. For retail companies, the addition of a new product category or a price reduction are always effective messages.Sales promotions, particularly very public or extremely unusual ones, make good messages. Anything out of the ordinary being done by the company in the name of public service or community aid is a legitimate message.In order for the message to be even rudimentarily effective, it absolutely must be true. Remember, the message is being disseminated by the legitimate news media; a false message will be discovered and exposed, and win immediately brand the company negatively. It will do more damage than having no message at all, and such situations must be avoided at all costs.Unique messages are going to be more noticeable and more attractive to the gatekeepers who dete
The initial capital gain is then calculated by taking the Base Cost from the sales price.
EXAMPLE Tom bought his bungalow in July 1995 for ?50,000. He paid stamp duty of ?500, legal fees of ?350, mortgage broker’s fee of ?250 and removal costs of ?535. The place was in a bad state of repair as an elderly couple had lived in it previously. Therefore, it needed complete modernisation. These works cost as follows:
1. redecoration ?2000
2. new kitchen ?5000
3. new bathroom ?3000
Not content with this upgrading work for his tenants. Tom’s next project was the erection of a shiny new conservatory to house his tenant’s collection of carnivorous houseplants. This cost him an additional ?15,000 (comprising of ?14,000 construction cost and ?1000 design and building regs fees).
However, in his enthusiasm to secure the maximum floor space. Tom built very close to his neighbours Jerry’s boundary. Jerry was a little jealous of Tom’s magnificent erection and aggrieved that it had crossed onto his boundary. He instructed his solicitor to send a letter threatening legal action to have it removed. Tom contested this and after Tom had spent ?500 on legal fees, Jerry dropped his action.
In 1999 Tom suffered damage to his weather vein of ?500. He secretly suspected that it was malicious damage by Jerry but was unable to proof anything. When Tom tried to claim for damage to his weather vein, the insurance company refused to pay out, stating it was storm damage and classed as an act of god not covered by his policy.
In 2000 fed up with Jerry’s constant agitation. Tom sold his bungalow for ?125,000. How much was Tom’s Base Cost for CGT purposes?
ORIGINAL COST ?50,000
Incidental cost of acquisition ?1000 (legal fees, stamp duty and mortgage broker’s fee). The removal costs were a personal cost and not part of the capital cost of the property.
Refurbishment works
?10,000 classed as enhancement works & therefore a capital cost Building of conservatory
?15,000 also classed as enhancement works & therefore a capital cost Legal fees defending title to property ?500 contesting boundary with Jerry
TOTAL BASE COST
?76,500
Annual exemptions
The personal allowance allows each individual to make a certain amount in capital gains each year without having to pay CGT. These exemption changes every year. In the tax year 06-07 it was ?8,800. Unfortunately, this exemption only applies in the year of disposal of the asset. Unused balances from previous years cannot be carried forward.
In addition to the annual CGT allowance there are a number of expenses and deductions that can also be taken into account to reduce your potential liability. Some of these are used to generate the Base Cost as previously mentioned. Expenses that are deductible are:
* the costs of acquisition such as solicitors fees, mortgage brokers fees, etc
* money spent on the property, including renovation and improvement costs
* the cost of disposal such as estate agents, solicitors, advertising. Remember not to get caught double counting the costs you may have already included under Schedule A as a repair.
It all seems fairly straight forward up to now!? However, just to make things a little more interesting, the Revenue have two minor complications called Indexation Allowance and Taper Relief.
Indexation
Indexation, which was effectively replaced by Taper Relief in 1998 was used by Government to account for inflation in the calculation of CGT. Therefore, where a capital gain was made, it allowed a proportion of the increase to be deducted.
This practice reflected the time when inflation alone would have resulted in large increases in capital value. It should also be noted that indexation relief may only reduce or extinguish a gain; it cannot convert a gain into a loss or increase a loss.
The calculation of the indexation allowance commonly called the ‘indexation factor’ is made according to the formula given below and rounded to three decimal places. The RPI or Retail Price Index is simply a measure of the price of goods and services produced by the Government’s Office for National Statist
Where is your business going? You must begin a business with the end in mind. In order to get from point A to point B, must know where both of those points are. If you don’t define the end goal, you have very little hope of ever getting there. Strategy is about planning and defining the straight line between those two points. Rather than taking the scenic route, a good strategy gets you from where you are to where you want to go in the most efficient way possible. You can’t draw that straight line if you haven’t figured out where and what point B is. I find a lot of entrepreneurs try to skip ahead and do marketing for their business before they have defined where their desired end point is. This is impractical and more importantly a mistake that can doom your business’ potential. There are plenty of marketing methods you can utilize. Sure marketing is an important business strategy but what you say, how you say it, and who you say it to, all depend on clearly defining your point B. You can spend your money and your efforts on marketing all day long, but if you don’t know what the goal of these efforts is then that spend can be largely waste. And small businesses do not have room for waste. So what is your vision? Create a clear picture in your mind. You can not acquire what you cannot see. That is why visualization techniques are so effective. Follow our vision formula and your business is sure to flourish.Create your business vision. There first step in creating your business vision is to clearly define what that future looks like. You do this by traveling forward in time to point B and then looking back on what has transpired to get you there. It is important to write this out, not just think it, to further solidify it in your subconscious mind. This should be in paragraph format and include as much rich detail and as many emotional words as possible. It is best to write it as if this future vision has already occurred and you are expressing gratitude for the events that have unfolded and the things you have accomplished. Here is an example: I am so happy now that I have expanded my business succes
In 1999 Tom suffered damage to his weather vein of ?500. He secretly suspected that it was malicious damage by Jerry but was unable to proof anything. When Tom tried to claim for damage to his weather vein, the insurance company refused to pay out, stating it was storm damage and classed as an act of god not covered by his policy.
In 2000 fed up with Jerry’s constant agitation. Tom sold his bungalow for ?125,000. How much was Tom’s Base Cost for CGT purposes?
ORIGINAL COST ?50,000
Incidental cost of acquisition ?1000 (legal fees, stamp duty and mortgage broker’s fee). The removal costs were a personal cost and not part of the capital cost of the property.
Refurbishment works
?10,000 classed as enhancement works & therefore a capital cost Building of conservatory
?15,000 also classed as enhancement works & therefore a capital cost Legal fees defending title to property ?500 contesting boundary with Jerry
TOTAL BASE COST
?76,500
Annual exemptions
The personal allowance allows each individual to make a certain amount in capital gains each year without having to pay CGT. These exemption changes every year. In the tax year 06-07 it was ?8,800. Unfortunately, this exemption only applies in the year of disposal of the asset. Unused balances from previous years cannot be carried forward.
In addition to the annual CGT allowance there are a number of expenses and deductions that can also be taken into account to reduce your potential liability. Some of these are used to generate the Base Cost as previously mentioned. Expenses that are deductible are:
* the costs of acquisition such as solicitors fees, mortgage brokers fees, etc
* money spent on the property, including renovation and improvement costs
* the cost of disposal such as estate agents, solicitors, advertising. Remember not to get caught double counting the costs you may have already included under Schedule A as a repair.
It all seems fairly straight forward up to now!? However, just to make things a little more interesting, the Revenue have two minor complications called Indexation Allowance and Taper Relief.
Indexation
Indexation, which was effectively replaced by Taper Relief in 1998 was used by Government to account for inflation in the calculation of CGT. Therefore, where a capital gain was made, it allowed a proportion of the increase to be deducted.
This practice reflected the time when inflation alone would have resulted in large increases in capital value. It should also be noted that indexation relief may only reduce or extinguish a gain; it cannot convert a gain into a loss or increase a loss.
The calculation of the indexation allowance commonly called the ‘indexation factor’ is made according to the formula given below and rounded to three decimal places. The RPI or Retail Price Index is simply a measure of the price of goods and services produced by the Government’s Office for National Statist
You have raised a home business with the help of products and services in which you honestly believe. Before counting your money, however, you need to make sure that your business has a future. And the best way to do this is through a carefully planned business-marketing program. Here is what you have to do.1. Do it your self. Do not delegate the building of the market foundation of your company. Even if there are some more qualified employees working with you, they do not know or love your business as you do. Ask for guidance from experts or hire them to help you design a business marketing plan, but bear in mind that the best results possible will come only out of your working closely with those experts.2. Don’t be shy. If you are reluctant to personal contact, you need to change your mind. Business marketing is about overcoming your inhibitions and coming out of your shell. You will not manage to market your business successfully unless you will personally speak up for it. Every time you are presenting your offer you must sound convincing and natural. Any hesitation from your part will reflect poorly on your sellings.3. Act ethically. Your most important rule is to remain correct above anything else. Don’t be tempted with get-rich-overnight scams because they will destroy your lifetime work and cause your company to go bankrupt. If you want to achieve success, you must show respect to your customers by not using deceptive or illegal methods.4. Focus on the benefits of your products or services. When planning a business market campaign, make sure you remember to emphasize the benefits rather than the features of what you are offering. Costumers are more likely to retain how their life will be made easier by your products than what special characteristics they have.5. Chose a quality campaign over a flashy one. Many home business owners fail to understand that a big flashy marketing campaign is not all matters. Sometimes, the best way to draw the attention of your customers is by a less ostentations approach. You should aim for something that the audience will be able to retain long enough so as
TOTAL BASE COST
?76,500
Annual exemptions
The personal allowance allows each individual to make a certain amount in capital gains each year without having to pay CGT. These exemption changes every year. In the tax year 06-07 it was ?8,800. Unfortunately, this exemption only applies in the year of disposal of the asset. Unused balances from previous years cannot be carried forward.
In addition to the annual CGT allowance there are a number of expenses and deductions that can also be taken into account to reduce your potential liability. Some of these are used to generate the Base Cost as previously mentioned. Expenses that are deductible are:
* the costs of acquisition such as solicitors fees, mortgage brokers fees, etc
* money spent on the property, including renovation and improvement costs
* the cost of disposal such as estate agents, solicitors, advertising. Remember not to get caught double counting the costs you may have already included under Schedule A as a repair.
It all seems fairly straight forward up to now!? However, just to make things a little more interesting, the Revenue have two minor complications called Indexation Allowance and Taper Relief.
Indexation
Indexation, which was effectively replaced by Taper Relief in 1998 was used by Government to account for inflation in the calculation of CGT. Therefore, where a capital gain was made, it allowed a proportion of the increase to be deducted.
This practice reflected the time when inflation alone would have resulted in large increases in capital value. It should also be noted that indexation relief may only reduce or extinguish a gain; it cannot convert a gain into a loss or increase a loss.
The calculation of the indexation allowance commonly called the ‘indexation factor’ is made according to the formula given below and rounded to three decimal places. The RPI or Retail Price Index is simply a measure of the price of goods and services produced by the Government’s Office for National Statist
Once you have chosen the sector that you want to operate in you want to narrow down to a niche area. Let’s say for example you wanted to build a list around people who are interested in fishing. There are a number of different things related to fishing, saltwater fishing, freshwater fishing, care of rods, fly fishing and so on.Do more keyword research and decide on a specific area. For example you may focus on tying flies for fly fishing. Everyone who fly fishes is a potential member of your list but you are focusing on just one aspect.Once you have narrowed down to this type of niche you need to work out the process in which you will capture the names and email addresses and lead the subscriber to becoming a customer. The whole process should be easy for someone to understand and complete. This is normally achieved by keeping the content congruent and using a quality auto responder.The process I have found that works best for me is to post content related to my niche in article directories, blogs or other traffic sources with a link to my website. I use an opt-in form on my site which provides an incentive for people input their name and email address. Any products I then recommend to the list will be related to this niche.I normally start this process by creating the incentive that I will use to persuade people to provide me with their names and emails. You’ll find that common incentives are always in the form of information and are normally a short email course or downloadable ebook or a combination of the two.It is easier to create an email course and this is what I would recommend if this is your first attempt at list building. It is important that you create the course for the exact type of person that you’re targeting and that you create useful and valuable content for the reader. This is your opportunity to start what will hopefully be a long and fruitful relationship with your subscribers and you should aim to build high levels of trust and credibility as quickly as possible.Pick a course title and create around 5 to 7 sub-headings that will form the essence of your course. You sh
It all seems fairly straight forward up to now!? However, just to make things a little more interesting, the Revenue have two minor complications called Indexation Allowance and Taper Relief.
Indexation
Indexation, which was effectively replaced by Taper Relief in 1998 was used by Government to account for inflation in the calculation of CGT. Therefore, where a capital gain was made, it allowed a proportion of the increase to be deducted.
This practice reflected the time when inflation alone would have resulted in large increases in capital value. It should also be noted that indexation relief may only reduce or extinguish a gain; it cannot convert a gain into a loss or increase a loss.
The calculation of the indexation allowance commonly called the ‘indexation factor’ is made according to the formula given below and rounded to three decimal places. The RPI or Retail Price Index is simply a measure of the price of goods and services produced by the Government’s Office for National Statistics (ONS) as a way of measuring prices and inflation.
The formula for the Indexation Factor calculates what the rise in the value of the asset disposed of would have been as a result of inflation given the base date of March 1982 & the end date of April 1998 when Taper Relief was introduced. Often these figures have been already calculated and are available in the form of a table, which can be used to speed up the calculation process.
Formula for calculating the ‘indexation factor’
RD = RPI in month of disposal or April 1998 whichever is the earliest
RI = RPI for March 1982 or month in which expenditure incurred, whichever is the Later
(RD – RI) / RI
Taper relief
From the 6th April 1998 taper relief took over from Indexation. Properties purchased before this date still benefited from indexation. However, gains after this date were subject to the new tax regime. Taper relief reduces the chargeable net gains according to how long the asset has been held.
Why is it called Taper Relief? This simply refers to the way that the amount of the gain liable for CGT ‘tapers’ off the longer the asset is held. Taper relief is given on the net gains chargeable after the deduction of indexation allowance and any capital losses realised. It is charged according to the rates stated in table A below.
Assets acquired before March 1998 qualify for an additional year to the period for which they are treated as held after 5th April 98. As you can see the taper for business assets is more generous. Unfortunately, residential rental property does not count as business asset because property investment is not classified as a qualifying trade. The exception to this is holiday lets. Investing in a holiday let therefore could be a way to acquire a property and dispose of it quickly without incurring a large CGT liability. I go on to discuss 2nd homes in more detail in the Landlords Bible.
TABLE A
No. of complete years after 5/4/98 for which asset held
Gains on business assets
% of gain chargeable Gains on non -business assets
% of gain chargeable
0 25 100
1 25 100
2 25 100
3 25 95
4 25 90
5 25 85
6 25 80
7 25 75
8 25 70
9 25 65
10 or more 25 60
It is possible to use the increased business taper relief where a qualifying business already exists and say acquires a residential unit for use by the staff. Such a unit is considered to be a business asset rather than a personal asset and therefore would benefit from the preferential taper relief. Obviously it would have to be made quite clear that the unit was used or required in connection with the business and was not just let to the public.
Occasionally the disposal of the investment property may not be through the open market but to a connected person e.g. to a relative or a family company. In this case HMRC makes the automatic assumption that the bargain is not at ‘arms length’. In this case a “market value” is substituted for the actual sale proceeds if the two amounts differ.
Of course one thing to note is that valuation of property to many is an art not a science and as a result there is an acceptance that valuations by different agents can vary by as much as 10%. If you are planning a transfer, then make sure that you evidence your ‘market value’.
Therefore, it would be best to obtain a number of written estate agents valuations. Obviously you then select the valuation that most closely reflects the ‘market value’ at which the transfer took place.
Generally, there is no CGT payable where there are transfers between husband and wife and also where property is transferred to a charity.
Main residence exemption
As I’m sure you are aware, where a property is occupied as a person’s main residence they are not liable for CGT on disposal. This tax exemption is also known as Private Residence Relief or PRR. That’s why you don’t have to pay CGT when you sell your home. There are, as in all cases in tax law, complications. For instance when individuals are required to live away from their property in ‘job related’ accommodation. In these cases it is possible for them to nominate a property they own as their main residence, despite
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