Taxing Times Ahead

16th October 2007

T. Wyn Jones

Some say it was in response to his opposite numbers announcement in the Tory Party conference others say he had it planned all along. In reality it matters not. What does matter is that Alistair Darling has signalled a significant change in the Government’s capital taxation policy.

The more pertinent changes to the everyday household are: -
Inheritance Tax (IHT). The old rules on Inheritance Tax stipulated that the value of anyone’s estate above £300,000 was taxed at 40% the only noticeable exception being the transfer of assets between married couples and civil partners. The recent change means that although the £300,000 threshold has not increased, married couples or civil partners will now be able to transfer the unused element of their inheritance tax free allowance to the spouses when they die giving the remaining spouse the equivalent of a tax-free allowance of £600,000 on their death. This change is as a direct result of the significant increase in property values, which now brings the “ordinary” household into a tax position, which was originally meant, for the very rich. However this change only formalises what many couples had already addressed by the creation of a “Discretionary Trust” within their will. It does mean though that it saves you having to “jump through hoops” and it allows more freedom than a trust would have. So the change effectively doubles the tax-free amount couples can bequeath their children. It is noticeable however that the Chancellor has chosen to omit both widows/widowers and divorcees in this change of rule.

Capital Gains Tax (CGT). Previously when individuals sold certain assets e.g. second homes the profit that they made was liable to tax at a rate of up to 40%. As from the 6th April this has changed to a flat rate of 18%. Again prudent tax planning utilised “taper relief” which could have resulted in a reduced liability of only 10% so again the headlines read better than the small print.

Looking specifically at the second home market there are two opposing camps. As the gain on the second property will now be taxed at the rate of 18% (once the allowances have been taken off) and not 40% there is the view that this change will lead to a significant increase in the number of second homes being bought, as the tax implications when eventually sold will not be so onerous. However the opposing view is that as the tax on the gain has been reduced from 40% down to18% those people who were thinking of selling, but had decided against it due to the tax liability could very well now decide to put those properties on the market.

And Finally. It appears that Tesco supermarket have suspended the private sales section of their property website and offered a full refund to customers. The decision has come after the Office of Fair Trading told the retailer it was acting as an Estate Agent so therefore would need to abide by the relevant laws.

Tesco claimed that customers liked the site so it is now considering launching a full online Estate Agency service. What they fail to realise is however that the Estate Agent’s job does not finish once the sale has been agreed. In fact as many current house sellers will tell you agreeing the sale of your property is comparatively easy. The hard work starts once you have instructed your solicitor!