Around 89% of higher-rate and 100% of lower-rate tax-paying landlords who sell their properties will see their capital gains tax (CGT) bill rise in April, revealed the latest data from Hamptons.
This is due to the annual capital gains personal allowance changes set to come into force from April this year, which will reduce the allowance from £12,300 in 2022/23 and £6,000 in 2023/24 to £3,000 in 2024/25.
This move will offset the CGT rate cut from 28% to 24% announced by the chancellor in the Spring Budget for most higher-rate taxpaying landlords who sell — when coupled with the drop in capital gains personal allowance, it will add £454 to the average CGT bill of higher-rate tax-paying landlords.
Meanwhile, the average lower-rate taxpayer’s CGT bill will increase by £1,674.
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.
According to the Hamptons data, newer landlords who have owned homes for less than five years and Northern investors will see the largest increase in CGT bills from April since they tend to make smaller gains.
However, long-term higher-rate tax-paying landlords who have owned BTL properties for over 20 years will see a 4% (or £734) drop in their average CGT bill.
Other winners from the CGT changes include most London landlords, who will see average CGT bills fall by 5% if they’re a higher-rate tax-payer, as well as investors selling larger houses.
“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 CGT changes taken as a whole will likely act as a disincentive, as most landlords leaving the market this year will end up paying more tax than two years ago, not less,” said Aneisha Beveridge, head of research at Hamptons.
“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.
“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.”
