Finance

How Changes to Capital Gains Tax Are Impacting Landlords?

By Christy Bella | June 5, 2023

Table of Contents

Following the tax changes announced in the Autumn Statement, the Capital Gains Tax (CGT) allowance has been halved to £6,000 and will be reduced again to £3,000 in April 2024. This could result in higher tax bills for many landlords planning to sell.

In this post, we’ll take a look at the changes to CGT and what this means for landlords and property investors who may be looking to sell in the near future.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit made from the sale of any asset that has increased in value.

If you sell a home you personally owned that wasn’t your primary residence during your full period of ownership, then it’s likely you’ll need to pay Capital Gains Tax.

This includes:

Buy-to-let properties
Business premises
Land
Inherited property
IES

Generally speaking, the gain is calculated as the difference between the price you purchased the property for and the sales price. For example, if you bought your new property for £200,000 and later sold it for £250,000, you’ve made a gain of £50,000. It’s this gain that is taxed, not the total amount of money you receive.

You are legally required to report and pay any CGT due on UK residential property to HMRC within 60 days of selling the property.

How do the changes impact landlords?

For landlords who own property personally, as opposed to through a company; the reduced reduction will mean a higher amount of CGT will be owed when a property is sold.

Higher-rate taxpayers will pay 28% on any gains from residential property. While those on basic taxpayer rates will pay a rate dependent on the size of the gain, 18% on residential property if it’s within the basic income tax band.

For example, if an individual sells a rental property in the 2022/23 tax year for £250,000, and it was originally purchased for £200,000, the initial £12,300 of the total gain of £50,000 would be covered by the exemption, provided there were no other gains within the tax year.

Hence, this portion remains untaxed. The remaining profit of £37,700 would be subject to CGT. Prior to April, this would have resulted in £6,786 for taxpayers in the basic rate bracket and £10,556 for those in the higher rate bracket.

However, as of April 2023, the reduced allowance means an increase in CGT in this example. For basic rate taxpayers, the CGT bill has now risen to £7,920, while higher rate taxpayers face a bill of £12,320. This will be higher again from April 2024.

Should landlords still sell despite the changes to CGT?

Despite the changes to CGT, a combination of rising mortgage costs and stricter regulation has meant many landlords have remained undeterred from selling. In fact, research from Simply Business found that almost half of UK landlords have sold property over the last year or plan to sell in the near future.

However, if landlords do decide to hold off from selling, they may well benefit from the growing demand the rental market is currently experiencing. Data from Zoopla has revealed that demand for rented homes is 10% higher compared to this time last year, and predict this figure will continue to accelerate over the coming months.

Thanks for reading

We hope that you’ve found this article useful and that it’s helped clarify the changes in Capital Gains Tax for landlords.

You can use the HMRC calculator to help work out how much CGT you may owe. For further tax advice, we recommend seeking the advice of an accountant or financial advisor.

For more business insights posts like this one, head to the 1st Formations .