CGT and Budget 2006

C

Centless

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Hi,

I have 2 questions relating to CGT.

(1) Does anyone know if there is any truth / substance in what I was told by a reputable EA over the weekend that they expect CGT rate to be increased and possibly doubled to 40% in the coming budget. If so, this in my opinion will result in a lot more property coming on to the market.

(2) If our current primary residence is let as an investment property will CGT be calculated at the purchase price of 2 years ago or the current market value at time of it becoming an investment property (in next few moths). There is a difference in value of about 80k.
 
Question 1:
Pure speculation, nobody knows.... May be he wants you to sell a house now

Question 2: have a look at this thread here
 
Thanks for this.

He didn't want me to sell a house - it was just a normal conversation but I was surprised that he seemed so sure CGT would increase so much!
 
I would be astounded if CGT Moved.
When it was lowered from 40% to 20%, revenues grew exponetially.
Low rates of CGT promote activity and enterprise.
 
I have also heard that rumour from informed sources- the rationale is a three pronged approach to prevent the housing market tanking - FTBs are experiencing reduced spending power and hence the market cannot be propped up from the bottom any more - the government wants to encourage PPR trader up activity to compensate and hence is looking at reducing / adjusting the PPR trader up stamp duty band - this will cost the government revenues and hence a sliding scale CGT (less will apply for long held property) will be applied to cover the stamp duty losses in revenue.

This is a triple whammy as voting PPR owners are benefited by the government , the government is seen as acting on specuvestors and the doors are effectively barred for a run to the exits for the specuvestors (most likely reason for a housing crash as price is set on the market margin) as the prospect of capital gain drys up (you want to leave that will be 40%+ please of your gain)

I was an investor and having seen the game get flimsy have just sold the last of my long held properties (up to 500% profit on some from the mid nineties) - remember it's the specuvestors that the government will hit.
 
derryman said:
I have also heard that rumour from informed sources- the rationale is a three pronged approach to prevent the housing market tanking - FTBs are experiencing reduced spending power and hence the market cannot be propped up from the bottom any more - the government wants to encourage PPR trader up activity to compensate and hence is looking at reducing / adjusting the PPR trader up stamp duty band - this will cost the government revenues and hence a sliding scale CGT (less will apply for long held property) will be applied to cover the stamp duty losses in revenue.

This is a triple whammy as voting PPR owners are benefited by the government , the government is seen as acting on specuvestors and the doors are effectively barred for a run to the exits for the specuvestors (most likely reason for a housing crash as price is set on the market margin) as the prospect of capital gain drys up (you want to leave that will be 40%+ please of your gain)
Click to expand...

This looks about right, I'd say your informed sources are on the ball.
 
- FTBs are experiencing reduced spending power and hence the market cannot be propped up from the bottom any more - the government wants to encourage PPR trader up activity to compensate
Click to expand...
This seems a bit of a paradox. If the government want PPR's to trade up and FTBs cant afford their prices who are they going to sell to?
 
derryman said:
I have also heard that rumour from informed sources.
Click to expand...

There is no such thing as an informed source when it comes to pre-Budget speculation - unless of course some high-ranking civil servant(s) are stupid enough to put their careers and pensions at risk by divulging commercially sensitive information into the public domain. The chances of anyone being so silly are remote.

derryman said:
the this will cost the government revenues and hence a sliding scale CGT (less will apply for long held property) will be applied to cover the stamp duty losses in revenue.
Click to expand...

This doesn't make sense - CGT is a discretionary tax in that it is only payable when someone decides to dispose of an asset. Low CGT rates incentivise people to sell, higher rates do the opposite. Experience shows us that CGT revenue for the exchequer rises sharply when rates are low and is comparitively depressed when rates are high It makes no sense for the Govt to depend on high CGT rates as a means of increasing exchequer revenue.
 
the vested interests are already playing out the soft landing story, hence sellers are being told to moderate their selling price expectations - so FTB prices are static - meanwhile more PPR trader uppers (not the most indebted if they purchased prior to 2001 - vast majority of home owners) will start to trade up more (most families in Dublin vast 10+% average trade up cost - 9% stamp plus legal and agent) - this drives middle market forward - FTB price stabilisation and no housing market crash.

think about it the UK have employed this for years - no punitive PPR stamp and a sliding scale of capital gains based based on length of ownership. Do you really think the revenue invent all the tax codes themselves (most is a mirror of UK / international codes with rate changes)
 
derryman said:
Do you really think the revenue invent all the tax codes themselves (most is a mirror of UK / international codes with rate changes)
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The Revenue does not "invent the tax codes" nor formulate Budget policy. That is the responsibility of the Dept of Finance and more specifically the Minister for Finance.

It is debatable whether there is much correlation between the Irish & UK tax codes when it comes to capital taxes. Gift & inheritance tax rules for example differ fundamentally between the two jurisdictions. CGT rules differ between the two jurisdictions on the basis of rates - however there is no reason why we should discard our "20% rate" policy (especially given its massive success) simply to ape the UK model.
 
this will be my last post on this matter so I will mark my stake that a sliding scale of CGT will be introduced in the next budget. Make sure that a signed contract of sale exists the night before the budget to avoid this

Regards the informed source, yes budgets are set by the government, but who do you think that the government consults when they make property related changes - the vested interests - hence the informed source - sometimes asking the wrong question at the right time gives it all away.

Lastly - look at the media FF spin doctors are pumping out currently - poor FTBs are being given a raw deal by specuvestors - hmmm what is that all about, PS what can we do to

a punish specuvestors
b help out PPR voters
c avoid a house crash that will wreck the economy
d ensure that we get back in cgt what we lose in stamp duty

all together kids - if the house is a little smoky, specvestors will jump regardless - so lets get our pound of flesh (or stop them outright and avoid the crash) - after all they are the numpties that bought since 2001 not our builder mates (lads ten years was a good run, have you not sold out yet)
 
derryman said:
vast majority of home owners) will start to trade up more (most families in Dublin vast 10+% average trade up cost - 9% stamp plus legal and agent) - this drives middle market forward - FTB price stabilisation and no housing market crash.
Click to expand...

In a market where Dublin prices are reported to have risen by more than 20% in the first half of 2006, a reduction in stamp duty from 9% even down to 5% would have a marginal effect IMO. I don't see it driving the middle market forward. Unbelievably punishing price rises in trade-up property didn't stop people trading up so reducing stamp duty is unlikely to have that much of an effect in propping up the middle market.
 
Any opinions on second question?

(2) If our current primary residence is let as an investment property will future CGT be calculated at the purchase price of 2 years ago or the current market value at time of it becoming an investment property (in next few months). There is a difference in value of about 80k.

Thanks
 
Centless,
The thread i refered to in my previous reply, with very detailed explaination from Satanta about CGT calculation, anwers your question 2 i think.
Is there a bit which is not clear?
Rgds
 
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