Britons relying on buy-to-let investments as their pension funds will have to tear up their retirement plans and start again, experts warned late last night.
By Myra Butterworth, Personal Finance Correspondent
Published: 12:01AM BST 28 May 2010
The tax rise is a fresh blow to more than a million Britons with buy-to-let mortgages who saw heavy falls in their investments amid the housing slump
The rise in tax paid on capital gains from its current level of 18 per cent will badly hit these investors when they come to sell their properties.
It means those near retirement will receive much lower returns than they were expecting if the Government increases the rate to 40 per cent or even 50 per cent, and will have to continue working later than they expected.
Jonathan Cornell, of mortgage brokers First Action Finance, said: “Clearly anyone that is hoping to fund their retirement from their buy-to-let portfolio would have taken capital gains tax into account. But they had better rip up those calculations and start again as their fund value will be decimated.”
It is a fresh blow to more than a million Britons with buy-to-let mortgages who saw heavy falls in their investments amid the housing slump.
Average values dropped more than 16 per cent during the financial meltdown in 2008, and even though they have since risen as Britain emerges out of the recession, current prices are still at 2005 levels, according to the latest house price index by Halifax.
Andrew Montlake, or mortgage brokers Coreco, said: “With the buy-to-let property boom during the past decade, many people switched their pension funds out of the stock market and into bricks and mortar. But with the rise in the capital gains tax, they will be hit hard and will no doubt feel let down by the Government.
“They’ll now have to be revisiting their retirement plans and considering their next steps. They made sensible investment decisions and are now being penalised.”
Accountants said it is “inherently wrong” to tax such investments at the same rates as income tax of up to 40 per cent or 50 per cent.
Mike Warburton, of accountants Grant Thornton, said: “It is one thing putting up tax rates, but it is fundamental unfair for inflationary gains to suffer tax at income tax rates.
If someone has invested in shares or property over a long period of time, a significant part of that gain is going to be inflationary. It is inherently wrong to tax that gain at income tax rates. Politicians need to be aware that this is an issue of fundamental fairness - as emphasized at the start of the Queen’s speech.”
Property investors are also suffering from a drought in mortgage finance with lenders restricting the best deals for those with a significant deposit.
The tough situation will force some investors to sell their properties while the lower rate is still in place.
Jeremy Leaf, a spokesman for the Royal Institution of Chartered surveyors, said: “The prospect of higher capital gains tax on the sale of property may in the near term encourage some existing landlords to take advantage of the current more benign tax regime.”
http://www.telegraph.co.uk/finance/personalfinance/capital-gains-tax/7773029/Capital-Gains-tax-buy-to-let-investors-must-tear-up-retirement-plans.html
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