Landlords selling up brace for Capital Gains Tax hike

Nine out of 10 higher-rate and every lower-rate taxpaying landlords who sell will see their capital gains tax (CGT) bill rise in April, analysis from Hamptons reveals.

The hike comes due to the annual personal allowance being cut from £12,300 in 2022/23 and £6,000 in 2023/24 to £3,000 in 2024/25.

SPRING BUDGET

For most higher-rate taxpaying landlords who sell the cut will offset the CGT rate cut from 28% to 24% announced in the Spring Budget.

Those landlords will see their CGT bill rise by £454 or 4% in April while the average lower-rate taxpayer’s bill will increase by £1,674.

Aneisha Beveridge, Hamptons

Aneisha Beveridge, Head of Research at Hamptons, says: “Although the Chancellor made it clear he was hoping to encourage landlords to sell up and add new housing supply into the market for first-time buyers, the reality is that the capital gains tax changes taken as a whole will likely act as a disincentive. Most landlords leaving the market this year will end up paying more tax than two years ago, not less.

She adds: “Recent changes to CGT will hit landlords making the smallest gains hardest. Typically, these will be newer millennial investors who have seen less price growth, or those selling cheaper homes in less expensive parts of the country. Meanwhile, older investors who’ve been landlords for longer and have accumulated bigger gains are much more likely to benefit from the tax cut.”

WORSE OFF

The lower personal allowance coupled with lower tax rates means any higher-rate taxpaying landlord reporting gains of less than £68,000 will find themselves worse off.  Meanwhile, those reporting larger gains will find themselves better off.

Beveridge adds: “The Chancellor’s changes to CGT rates only apply to higher-rate taxpaying landlords with homes in their own names.

“Meanwhile, the growing number of investors with homes held in companies pay corporation tax on their sale proceeds after costs instead.

“While tax efficiency has been the major draw of a company structure, increasingly it’s also the certainty and stability it offers. Chancellors’ have generally proved less likely to tinker with company tax rules than individuals.”

The latest Hamptons Lettings Index also reveals rental growth continued to cool in February with the average rent on a newly let home in Great Britain rising 7.1% year-on-year.