With Capital Gains Tax (CGT) rates higher for landlords looking to dispose of property, the upcoming changes in April could have a big impact on their plans.
The Chancellor, Jeremy Hunt, announced during the Autumn Statement that the individual annual tax-free exemption for CGT would be reduced from £12,300 to £6,000 in April 2023, and further reduced to £3,000 in April 2024.
Landlords are subject to CGT on the gain generated from the sale of buy-to-let properties at a rate of 28 per cent for higher or additional rate taxpayers and 18 per cent for basic rate taxpayers.
With reduced CGT annual exemptions applying from 6 April 2023 this means landlords will face increased CGT liabilities when selling properties in the years ahead.
Research conducted by estate agency Hamptons indicates that the typical landlord in England and Wales will experience a 12 per cent increase in their CGT bill, or £2,610, when the tax-free annual exemption drops to £3,000 in April 2024.
The study shows that before then when the annual exemption reduces to £6,000 in April this year, the average landlord selling a property will pay £1,770 more in CGT.
Hamptons’ analysis also reveals that higher-rate taxpayers paid a CGT bill of £21,260 on average when selling a property this year.
Considering tax liabilities may rise by 10 per cent as a result of this change, this means that the average CGT bill for landlords may increase to over £23,000 by 2023 and almost £24,000 by 2024.
Of course, these rates are dependent on property prices remaining static. However, the Office for Budget Responsibility predicts that property prices, while currently declining, will rise by more than three per cent in 2027.
This means greater gains and larger tax bills on the horizon for landlords and investors who are looking to sell.
If you or a client are looking to sell and make use of the current £12,300 annual exemption the sale would need to have unconditional contracts exchanged by 5 April 2023 at the latest and the CGT would need to be reported and paid to HMRC within 60 days of completion.
If you need tax advice on property sales, please contact us.
