Tax Shock - did the Budget REALLY reduce Capital Gains Tax?

Some 89% of higher-rate and 100% of lower-rate taxpaying landlords who sell will see their Capital Gains Tax bill rise in April.  

This is because the annual capital gains personal allowance is being reduced 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 in the Budget for most higher-rate taxpaying landlords who sell.  

Taken alone, the CGT reduction from 28 to 24% will save the average higher-rate taxpaying landlord £3,800 when they sell.  This is based on the average landlord selling their buy-to-let for £110,000 more than they paid for it last year - that’s before any allowable expenses are deducted.

However, the annual capital gains personal allowance is falling from £12,300 a year in 2022/23 and £6,000 in 2023/24 to £3,000 in 2024/25.  

When the reduction to higher-rate CGT is combined with the drop in the annual capital gains personal allowance, it will add £454 or around 4% to the average CGT bill.

This means that despite the rate cut, from April 2024, 89% of higher-rate taxpaying landlords selling up will pay more tax than they would have paid two years ago.

A higher-rate taxpaying landlord reporting a capital gain of less than £68,000 will find themselves worse off than two years ago.

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.  Meanwhile, those reporting larger gains will find themselves better off.        

Newer landlords and Northern investors will see the largest increase in CGT bills from April since they tend to make smaller gains, says lettings agency Hamptons, which made this analysis of the tax.

Aneisha Beveridge, Head of Research at Hamptons, says: “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.

“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. Meanwhile, older investors who’ve been landlords for longer and have accumulated bigger gains are much more likely to benefit from the tax cut.

“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.”

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