Tuesday, 1 July 2008

Property in the UK 10: Watch Out! Capital Gains Tax

As regular readers of this blog will know last year I had to move twice, had a £16,500 bill from Newham Council in London for owning a flat in their borough, got ripped off by my estate agent selling the flat and overcharged on the house I was trying to buy. After all that, I thought this year in terms of housing (despite the landlord from the last place still trying to get a further £1400 off me) things would settle down. Like the bulk of the population in the UK and across the world, I have been finding it hard to get by with rising food and fuel prices and have had to cut back severely right across everything I buy. I have now had no new items of clothing for 3 years. However, my problems are just beginning and that is because of capital gains tax.

Now, most people do not have to pay capital gains tax when they sell their house. However, I made a huge mistake when I left my flat in Newham and went to Milton Keynes for a far better job. Everyone told me that I would be foolish to sell the London flat as the value of property in London rises far faster than anywhere else in the UK and also I could get a good income from letting it out. That all turned out to be fantasy, I should have sold the flat as soon as I knew I would be working beyond commuting distance. The flat was worth more than when I bought it, but almost any property I bought in the UK would have been worth more after a few years and I lost out on at least £10-12,000 (€12,200; US$19,900 - €14,600; U$23,800) because of using such a bad estate agents. I was overcharged £5000 on the house I bought and in the recent slide in prices it has lost £20,000 on what I paid on it. Every choice I made basically cost me money. The £16,500 bill from Newham Council wiped out all the rent I had ever earnt on the property, so the only gain was in value and I had had a lot of hassle being a landlord at a distance too, costing me at least £2000 (€2,400; US$3,900) in upkeep of the property each year and some years as much as £4,600.

The reason why I should have sold my flat immediately when I left London is because I would have been free of yet another charge, capital gains tax. This is aimed at you when you sell up a business and really should cover things like factories and machinery. As such you cannot set any loss in income (I made a huge loss in the final year of renting out the property due to all the charges) against this tax. I am now liable for at least £6,600 (€8000; US$13,100) and possibly as much as £8,000. I cannot get the final figure as Her Majesty's Revenue and Customs (the name now for the tax office) sent me two sets of the wrong form and another partial form covering the tax year 2006/07 rather than the one we are dealing with at present 2007/08. I telephoned to ask them if I could pay instalments on the tax and was told that because it is over £2000 that is not possible. They offered to allow me to start paying it now rather than on the deadline of 31st January, but given that I have no money that is no benefit.

What made the whole experience of talking to the tax office was not the fact that again the advice I had received (that you could pay in instalments) was wrong, but their whole manner. The woman said I had been foolish to put all the money I had earnt from the flat sale into buying my new house and should have held back enough money to pay the tax. I am no tax expert and usually selling a property you only get stamp duty. How much should I have held back? If I had kept back £4000 then it would have seemed a lot but would have been insufficient. As it was I bought too expensive a house, I listened to those people who said it was a good investment, but now, just six months later it looks like it will have to be sold to cover my capital gains tax. I asked if I could go bankrupt and the woman said it was possible but sneered at me accusing me of trying to dodge my taxes by going bankrupt. I accept I have made mistakes, I accept that all the financial I have received for the past ten years has been utterly wrong and has cost me thousands of pounds, but I do not need some official rubbing it in, goading me and portraying me as if I am trying to defraud the country.

Like so many people I was pressurised to buy a house, by the fact that it is the only way to get any kind of investment growing in the UK, the fact that I was pushed around by landlords/ladies and that you have no standing in this country if you are not a property owner. Like so many people I am going to have to give up that house now, if I can sell it that is or face as the woman told me with glee (she seemed eager to get proceedings started immediately) I will face legal proceedings. I just dream of a day when I can just go to work, come home and go to sleep without people coming after me for money. I am happy to pay tax but cannot keep conjuring up thousands of pounds on demand. We are not all rational business thinkers, we are pushed by other pressures than pure economics. I keep wishing I had killed myself last August and got away from all these sleepless nights (exacerbated by the prospect of losing my job in August 2009). No wonder people are angry. I was once comfortably off and seemed to have a future, many people have had it far worse than me. If I am angry and disheartened no wonder the one-in-six British people who envisage losing their home to creditors in the next year are furious and suicidal. We played the Thatcherite game of becoming property owners not realising that we had lost even before we had started and only the super-rich can win in this system.

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