45% of Landlords 'Strongly Concerned' or 'Concerned' About Imminent Capital Gains Tax Changes

Capital gains tax (CGT) is a tax on individuals' profits when selling assets such as property or shares. It's currently charged at either 18% or 28%, depending on the individual's total taxable income. 

A higher-rate taxpayer will pay 28% on any gains from residential property. Those on basic taxpayer rates will see the rate changes depending on the size of the gain; 18% on residential property if it's within the basic income tax band (£37,700 for the 2021 to 2022 tax year) or 28% if it's higher. 

In the Chancellor's Autumn Statement on 17 November 2022, he announced that Capital gains tax allowances will be reduced from April 2023 and further reduced from April 2024.

What's happening to CGT in 2023? 

The annual CGT tax-free allowance is currently £12,300, meaning buyers only pay tax on gains above this amount when they sell a property. 

The tax-free allowance will, however, decrease by more than half to £6,000 as of April 2023. It will drop to £3,000 in 2024 - the lowest allowance in over 40 years.

As Stephen Clark, from Finbri, a specialist property finance broker, comments, "The new CGT rate, coupled with other tax changes that have been introduced in recent years such as the restriction on mortgage interest relief and stamp duty increases, will significantly impact profitability for landlords and investors when they come to sell their properties.

“The private rental market is vital in the broader UK housing market. It provides accommodation for those unable to get on the property ladder and landlords with an income. But with increasing rates and the looming impact of CGT rates changing, landlords are under significant pressure, with many looking to leave the market altogether."

With the proposed changes due to take effect in April 2023, landlords must consider how they can best manage their investments to minimise potential losses.

What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) is a tax on the profit you make when you sell an asset that has increased in value.

For example, if you bought a property for £250,000 and sold it later for £300,000, you've made a profit of £50,000, and it's this gain you're taxed on.

What landlords need to know ahead of upcoming changes

Landlords should start preparing for the potential impact of CGT by reviewing their portfolios and assessing their potential gains. This preparation will help them calculate how much tax they may owe and plan for the future. It's also essential for landlords to consider other ways to generate an income to help cover their CGT liabilities, such as increasing rent or diversifying their investments. 

To ensure that they remain competitive in the long-term and continue to generate returns from their property investments. In addition, by understanding the implications of capital gains tax, landlords can take steps to prepare for the potential impact it may have on their investments. 

What is the consensus surrounding upcoming changes? 

The survey also showed that landlords are concerned about the potential impact of the proposals on their profitability. Although the proposed rate of 20% is still lower than the current 28%, landlords are worried that it could still significantly impact their overall profits. 

Despite landlords' concerns regarding CGT, 44.66% said they believe now is a good time to invest in the property market and 45.15% think they will invest in 2023.

Final thoughts

The clock is ticking for capital gains tax and its current thresholds, causing a lot of uncertainty for landlords and property investors, who are concerned about the potential impact on their investments. Landlords should take steps to understand the implications of CGT and plan to remain competitive in the long term.

By taking these steps, they can ensure that they can still generate a profit from their investments and remain successful in the long term. This is critical to the property market's health, as landlords provide much-needed housing for tenants across the country.