Tax experts have warned buy-to-let investors stand to be stung by possible capital gains tax (CGT) if they lose their nerve due to falling rents and sell at the wrong time.
IRPC Taxation Services, which provides helplines that support clients insured against possible tax investigations, has warned it is receiving a number of calls about CGT.
Alan Frazer, business director of IRPC Taxation Services, said: ‘Property can generate good returns, yet too many people had unrealistic expectations on the amount of rental income and capital gains to be made. Anyone thinking of an early sale due to falling rental income should balance this against a serious loss of profit arising from CGT.’
The rise in house prices over recent years means many borrow-ers are likely to exceed the £7,700 annual tax-free limit on gains.
But Malcolm Harrison, spokesman for the Association of Residential Letting Agents, does not see this as a problem: ‘The simple answer is that if you have a capital gains liability you have made a profit,’ he said.
Taper relief reduces the proportion of capital gains that is taxable when selling assets such as property.
However, it does not normally apply to non-business assets during the first three years of ownership. Even after six years 80% of the gain remains taxable. Maximum taper relief after 10 years is 40%.