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Property, tax and equity

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Tax and property are on everybody’s lips at the moment with the various changes introduced by the Government aimed at landlords.

However, do landlords fully understand their current positon and have they thought about their exit strategy?

We recently spoke to a soon to be new client and their ‘modus operandi’ was to purchase property, release equity (for either their own personal use or to buy further properties), wait for prices to go up and then repeat the process. Worst still each time taking an interest only mortgage as monthly repayments are cheaper.

This worked great during the good (or bad depending on current loans to value) times but have landlords taken stock of their current position?

Consider the following simple example of a landlord Mr X who purchase a property 20 years ago for £50,000 and as prices rose, has released equity from the property:

  • Original Cost                                             50,000
  • Current Market Value                           200,000
  • Equity Released/Current Debt          150,000
  • Sale Proceeds                                            200,000
  • Cost                                                                50,000
  • GAIN                                                            150,000
  • TAX                                                              42,000
  • Sale Proceeds                                             200,000
  • Repayment to Lender                             150,000
  • Payment to HMRC                                    42,000
  • Balance Of Funds                                8,000

It may come as a shock to Mr X that after holding the property for 20 years, on a sale, he will be left with £8,000 – was it all worthwhile he may ask himself?

Working with ETC we can implement planning that will mean on the sale Mr X would retain £50,000 of the sale proceeds after repaying the bank.

 

If you or your clients would like to find out more then please let us know.

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