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Higher Capital Gains Tax bill for landlords selling this April

Higher Capital Gains Tax bill for landlords selling this April
Shekina Tuahene
Written By:
Shekina Tuahene

Landlords who sell a property from this April will pay a higher Capital Gains Tax (CGT) bill despite the recent rate cut, analysis from an estate agent group found.

According to Hamptons, this will affect all lower-rate-paying landlords and 89% of those who fall in the higher rate category. 

Earlier this month, Chancellor Jeremy Hunt announced that the CGT rate would fall from 28% to 24%. However, in 2022’s Autumn Statement, it was revealed that the annual capital gains personal allowance will be reduced from £12,300 for the financial year 2022-23 to £6,000 for 2023-24. It will then fall again to £3,000 in 2024-25. 

Hamptons said this change would add £454 or around 4% to the average CGT bill, leaving 89% of higher-rate taxpaying landlords paying more in tax than they did two years ago. 

Lower-rate taxpaying landlords will see their CGT bill rise by an average of £1,674 from April. 

This is based on a landlord selling a property for £110,000 more than they paid for it a year ago and before allowable expenses are deducted. 

Hamptons said that, seeing as nearly all landlords reported a gross gain of £110,000 when selling last year, this would impact the majority. 

The firm said the impact of cutting the personal allowance and reducing the tax rate was “regressive”, as higher-rate taxpaying landlords with the smallest gains and previously covered by the £12,300 allowance would now see the largest rise in tax bills, both in terms of the percentage and in absolute terms. 

According to the firm, higher-rate taxpaying landlords with gains of less than £68,000 will be worse off, and those with larger gains will see their position improve. 

Newer landlords losing out 

Hamptons said landlords who were new to the sector and investors selling in cheaper markets would have the largest CGT bill increases. 

On average, a landlord who has owned their property for fewer than five years will be hit by a 9% increase to their CGT bill. Meanwhile, higher-rate taxpaying landlords who have owned for at least 20 years will see a 4% drop or £734 fall in their average tax bill. 

For those who make a saving, the CGT bill will decrease by at least 10% for around half of landlords. 

Hamptons said this accounted for landlords with the largest gains, so while they will pay the most tax compared to other landlords, they will pay a little less than before. 

Landlords in London will also benefit from the change, as their CGT bill is set to fall by 5% on average if they are a higher-rate taxpayer. Those selling larger homes will also be better off, as a landlord selling a detached home will have a £132 reduction in their tax bill. 

In contrast, flat sellers will pay £608 more on average, those selling terraced homes will pay £565 more and semi-detached property sellers will see a £450 rise. 

Aneisha Beveridge, head of research at Hamptons, said: “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 added: “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.” 

Rental growth eases in February 

The Hamptons Letting Index showed that the average rent on a newly let home in Great Britain increased by 7.1% annually to £1,317 per month, a softer rise than the 8.3% growth recorded in January. This was also down from the 12% peak seen in August last year. 

Hamptons said rental growth was still outpacing inflation, and the average tenant moving into a new property would be paying £87 more each month or £1,044 more per year than they would have a year ago. 

The number of homes available to rent increased by 30% annually, which Hamptons said was a sign of how long it was taking for homes to be let out rather than landlords buying more properties. 

Rental stock levels are still 41% down on February 2019. 

Rents rose the most in Scotland, with an 11% yearly jump to £923 per month. The country was one of two places, including the East of England, where rents rose at a double-digit pace. In the East of England, average rents increased by 10.3% to £1,265. 

The smallest annual increase was recorded in Wales, where average rents rose by 0.9% to £799 per month. 

Beveridge added: “The pace of rental growth continued to cool in February. But rents are still some way off falling annually and tenants continue to feel the squeeze. Lower mortgage rates have meant landlords needing to refinance in 2024 are seeing a smaller adjustment in their mortgage costs than those who remortgaged in 2023.

“This is slowly helping to balance mortgaged investors’ books.” 

Related: Capital gains tax intake hits record £16.7bn as landlords start to sell up