As a property investor, it is likely that at some time in the future you will wish to sell. If you are residenti in the UK for tax purposes, Capital Gains Tax is the tax that you have to pay on on any capital gain (essentially the difference between what you have paid for it and what you sold it for) you make on the sale. So, if your investment property has increased in value, it is likely that you will have a taxable capital gain. If you are a higher rate tax payer, this could reduce your return on investment by up to 40%.

As with income tax, how much CGT you pay depends on your overall income. Your total taxable gains are added to your taxable income for the year and treated as the top part of the total.

It was Tory chancellor, Selwyn Lloyd in 1962 who first introduced "a speculative gains tax" (with a then income tax rate of up to 80%) on shares sold within 6 months or land sold within 3 years of acquisition. The original aim being to penalise the short term speculator.

Since that time various shades of government have tinkered with the rates, changed the conditions and attempted to block loopholes but the tax has remained in the armoury of revenue gathering.

One major problem with this tax for the investor is that it historicaly took no account of inflation and the main complaint against it was that the so called "gains" were illusory.

In 1982 the Tory budget planned to allow future indexation of assets (subject to date of acquisation).

In 1998, the then chancellor, Gordon Brown introduced "taper relief" The 2007-2008 tax year will be the first year that maximum taper relief can be applied for on disposal of assets held on or before 1998. Taper relief in a nutshell applies to an asset held for 3 years or more that would qualify for a  discount of 5% a year on the individuals marginal income tax rate. In other words, from the third year onwards a 40% tax payer will pay 2 percentage points less each year - after 10 years the effective rate could (in theory) be 24%. This is a hugely complex system which seems to have ended up penalising the long term investor in shares or investment property which it was not originally intended to do, being aimed against the short term speculator.

Another change had been proposed, this time by Alistair Darling, for 2008. A flat rate of 18% is to be applied regardless of how long an asset has been held, although revisions to this were to be announced on 24th January, which offer business owners a £1 million lifetime capital gain allowance that will attract only a 10% tax rate. Over £1m will be taxed at the new 18% rate. Although there is a great deal of consternation that the benefits of the "tapering" system are to be lost, this, for some investors in property will be an inducement to sell and release their equity in order to maximise their gain.

We at Robert Bell & Company would always recommend seeking specialist financial advice pertaining to an individuals own circumstances, but if your decision is to capitalise on a long term investment property, do not hesitate to speak to our residential sales team who will be pleased to provide a valuation and to advise on current market conditions.

For those seeking to invest in property the reduction of the rate of capital gains tax will be a boost to their projected gains and again we  at Robert Bell & Company will be delighted to assist in seeking sound rentable property and advising on its preparation prior to marketing.

For further information on the subject of Capital Gains Tax

www.hmrc.gov.uk/cgt/

Contact either: our Lincoln

or Horncastle office