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Capital Gains Tax - How to optimise your position

The data from the 2021 to 2022 tax year reveals that it has been a bumper year for capital gains in the UK, setting records in both the amount of capital gains and the tax gathered from them.

£16.7 billion was owed in Capital Gains Tax (CGT) by 394,000 taxpayers, realised on £92.4 billion of gains. This shows a considerable 15% increase in both CGT and gains from the previous year, while the number of taxpayers grew by a huge 20%.

The tax take from CGT is only likely to get more stark as we look forward considering the changes to the Annual Exemption Allowance (AEA) for capital gains tax. From £12,300 in the 2022/23 tax year, the AEA reduced dramatically to £6,000 in April 2023 and will further drop to £3,000 from April 2024. This reduction could significantly boost the CGT take in future years, as taxpayers will have a lower threshold before becoming liable for CGT.

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The data around CGT when it comes to property sales is significant with 139,000 taxpayers reporting 151,000 disposals of residential property in the 2022/23 tax year amassing a total liability of £1.8 billion, which is much larger than in the 2020/21 tax year. This data suggests that there is an exodus of landlords from the property market as the tightening of tax laws on Buy to Lets make them a more unattractive investment. Coupled with this the continuing high property values but simultaneous threat of a property price crash is seemingly making more landlords opt to sell up. How this ultimately impacts the market for all prospective buyers and renters is yet to be seen. Currently property prices are slipping slowly but rent remains sky high as renters compete for a dwindling stock of rental properties.

Similar to the distribution inheritance tax payers, a disproportionate share of CGT comes from a small number of taxpayers making the most significant gains. Less than 1% of CGT taxpayers, those making gains of £5 million or more, contributed to a whopping 45% of CGT in the 2021 to 2022 tax year.

Additionally, we see that as income and the size of the gain increased, the number of individual taxpayers decreased. For example, 45% of gains for CGT-liable individuals came from just 12% of individuals earning over £150,000. Regionally, London and the South East dominated, accounting for nearly half of total gains (49%) and tax liability (51%) in the 2021 to 2022 tax year.

As we look to the future and the prospect of these figures growing even larger it becomes crucial that taxpayers utilise the tools available to them such as maximising ISA and pension allowances and using other products like single premium investment bonds. Similarly, there are lots of financial planning opportunities that can help reduce your CGT burden so seeing a professional financial adviser can help reduce your bill.

For example, if you are planning to sell an asset and can spread the gain over two years you’ll be able to utilise your AEA for each year, ultimately reducing your liability. Also if you are married or in a civil partnership then you can transfer assets between each other without incurring CGT and ensure that you utilise both members of the couple’s AEA.

Finally, remember that you can offset your losses against your gains. If you have unfortunately realised a loss on an asset you can claim this against any other gains in your portfolio.

* Rachael Griffin is a tax and financial planning expert at Quilter *

Want to comment on this story? If so...if any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals on any basis, then the post may be deleted and the individual immediately banned from posting in future.

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    The amount of capital gains tax being paid to the Government is huge - the Renters Reform Bill has resulted in an enormous tax windfall for the state. I can understand people being prepared to pay millions in tax; with sitting tenants the value of their assets will plummet. We know that all the Section 8 grounds can become discretionary, rather than mandatory, as happened in Scotland, and there can be eviction bans, too.

    There is also the question of timing. It seems predictable that a large number of people will decide to sell just before the provisions of the Renters Reform Bill apply to existing tenants. Therefore that could be when property prices start to fall most sharply.

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    No question about it the Result of Removing Section 21, a big pay day for Government but also the creation of the housing crisis what’s that going to cost.

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    This explicitly explains why rents are rising, coupled with rising interest rates. Expect capital gains tax to reduce substantially after this present tax year.

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    I am happy to pay it 💰 the government have clearly seen an opportunity to rinse us as we sell 🆘🆘. They will not put me off selling up, apart from a complete ban on evictions, this will continue 🤷‍♂️

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    CGT has got to be one of the main reasons very few young people want to be a landlord. Why would anyone want to enter an industry with no sensible exit route? Especially if they are also going to pay tax on money they don't have and lose their Child Benefit in the process.

    It used to be straightforward and reasonably fair. Now it is basically a life sentence if you don't want to effectively give the government a couple of bedrooms when you sell.

    When I bought my first batch of properties from 1998 to 2002 there was taper relief to encourage landlords to provide stable long-term homes for tenants while allowing them to retire when the time came. If I sold any of those houses now the CGT would be between about £80000 and £115000 per house, which is basically two bedrooms worth per property.

    I bought a few lower value properties between 2009 and 2012 almost all of which were either repossessions or probate sales. CGT was a concern but the purchase price was attractive enough to overlook it. Most of them would now have a CGT bill of around £19000 per property.

    When the Tories won a majority in 2015 I was full steam ahead and bought 2 more HMOs (putting one of them in 4 names to try and dilute the CGT impact). That decision caused later problems for my son when he was getting divorced and wanted to buy his own house and had the 3% extra SDLT issue). CGT on those 2 would be about £25000 and £50000.

    Another property was bought in 4 names in 2017 when another son separated from his wife. We had a family whip round to buy a flat for him and his children. He has now bought a house and the flat is let via one of the Council schemes. CGT about £9000.

    Another one in 4 names in 2019. CGT about £13000.

    The two after that have been bought via a limited company.
    Throw mortgage early repayment charges into the mix and the cost of selling some of those properties is obscene. Especially bearing in mind all the tax and VAT the government have received throughout my ownership of these properties.

    If CGT and SDLT were at sensible rates I may sell a couple of personally held properties and buy a few more through the limited company. My son would be keen for expansion in certain directions. At the current tax rates I'm not going to either sell or buy.

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    Capital gains or not
    ... I'm selling.

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    Agree, sometimes you just have to put what is really important in life ahead of fiscal gain, I am happy what I will walk away with 👍🏻 It will ‘ see me out’ with none of the hassle.

     
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    Activists want to deter sales by highlighting the capital gains tax penalties, but they are fighting a losing battle on that front.

    They also want to emphasise the problems with AirBNBs to prevent landlords switching to short term letting, but what they are doing all the time is so obvious.

     
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    This Government needs to recognise the service Landlords and provide incentives. Stop this war on Landlords or ultimately it will be Tenants who lose out most.

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    I’m out too, the whole thing is a joke ,thinking of changing my name and becoming an illegal immigrant, that way I get a house after a short stay at a 5 star spa retreat and then sublet to other illegal immigrants, I don’t know what can be done to prevent this as I don’t speak English

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    We have basically a socialist government in power. It's very difficult to avoid the taxes through planning as they are constantly changing the rules. Wait till liebar get into power. Then we will see communism. You will own nothing and be happy.
    I'm in the process of moving to a quieter less loony left area. I will probably sell my encumbered house as I cannot plan or be certain as to the law or tax regime. The country's basically gone bonkers.

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    I bought an investment property in 1983 but kept it empty for a few years, then let it to American Forces personnel because I new they would leave in due course. Then section 21 came into play and I was confident to let to UK people from then on. I have never used section 21 and people have moved out at their convenience. However, I am not planning on being dictated to by this Woke, un-Tory government, so it will soon be another property without a tenant. If I sold now I could obtain as much in interest on the capital as I am taking in rent and that is after paying a large CGT bill of approx £70k+. However, I have no intention of paying CGT this decade and then Inheritance tax on the balance in the next decade, so plan to downsize by selling my main residential home, completely free of CGT and then move into my currently rented house as my main home. I realise this would not work for most landlords but it will work well for me. However, I would have been prepared to go on letting my property, had war not been declared against private sector landlords.

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    So much vitriol, anguish, spleen in our wonderful echo chamber:but no one is directing it at the government.

    The pen is mightier than rhe sword. Bombard your MP and make them work for their living.

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    You have a good point.

     
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    I regularly write to my MP with proof of issues in PRS. He is polite and sends them to Dept of levelling up etc and I get letters back from Rachel McLean Housing Minister telling me its not a problem??? I saw recently she cited the scottish PRS as being stable and also said her policies were not causing Landlords to sell🤣🤣

     
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    You are very good Catherine! The response from all those involved in the Renters Reform Legislation be it Shelter, Acorn, the Government, the NRLA is one of wilful blindness i.e. ignoring or denying the developing housing crisis which the unwise legislation is creating.

     
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    I too write regularly to my MP, who passes it on to the dept for Levelling The PRS To The Ground and I get an identical letter to Catherine's from Rachel Maclean making exactly the same spurious claims, so it's probably a standard letter which she doesn't read in order remain blind to the truth!

     
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    How naive, don’t even get a reply from my mp, you need to open your eyes and see that they are all in this together!

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    If you write to the relevant department you will just get a standard letter back. I think we have to find our own strategy now that letting to ordinary UK people is being made unadvisable due to the abolition of Section 21. The options I can see are:

    1. Sell and pay the capital gains tax whatever it is
    2. Follow Mike's suggestion above and move to the buy to let property, selling your main residence
    (that may work if you only have one buy to let property and you are happy to live in the buy to let property)
    3. Change your business model so that you let to companies etc - the residents would be licensees and not tenants in those circumstances
    4. Provide serviced accommodation with a regular cleaner etc. You would have to pay the council tax and other outgoings (obviously added to the rent). Not sure whether there could be a planning issue with that option

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    On the planning issue with respect to serviced accommodation, I believe that in planning terms if the stay is less than 90 days then it would be classed as hotel use (needing planning consent), and if it is more than 90 days then it would be classed as residential use, so if you were switching to serviced accommodation have a minimum 90 day stay policy - and I think check that the person has a main residence elsewhere to be on the safe side. You would need a serviced residential property contract, not an assured shorthold tenancy agreement.

    You would really need to provide proper services or could be in trouble.

    If anyone has better information about this subject please share it.

     
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    My plan has always been to move into one of our 2 buy to let properties, that are in our personal names. We would have had only one. When we completed an off-plan property in 2009, no-one was willing to lend to the company name. All my company loans were with Barclays but they refused me as it was in high rise building. Also my loans/liability to them was greater than £1.5M. So we ended up having 4 properties in our names at that time. 2 of the small properties were sold in 2018 and 2019 with no CGT as a small profit for each. Our SPV company was set up in 2005, so we have been buying in company names. I started buying BTL in 1988. We are hoping to sell our main home in the future, no CGT, move into the house that is in the same borough as the present one. That house is usually let to 4 professionals (as current) or students (from September, 3 international students, paying 20% more than last tenants, as rents have increased dramatically). The other property is central London with very high service charges. I wish to sell it, though it is fixed mortgage for another 4 years (will replace it with a cheaper 1 bedroom property in central London, with low service charges). The price has not gone up for that flat as much as the houses in my area (as it was bought off-plan in 2005, completed in 2009, and was overpriced, as most off-plan flats). I would also like to sell 2 to 3 small properties from our company within the next 2 years, as by end of this year they will all be mortgage free. Our residential mortgage becomes mortgage free in about a year, so we can sell it, then or wait further 5 years. The BTL, we are planning to move into has fixed rate mortgage until the end of 2024 (paying a fixed rate of 1.79%), so it is the right time to sell our residential house next year. The demand is always very high on our road. Our neighbours have said, we will never be able to move back once we leave. There is a reluctance to sell it, so may wait 6 years.

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    Mike. you are right I know exactly how it was in 70’s early 80’s and exactly where we are going back to, no rights or control whatsoever which was why there few lettings landlords only a few mugs like me.
    Lawyers now banding together looking for legal aid to represent Tenants, how many more snouts in the trough ripping off Landlords, easy money at more tax payers expense totally unnecessary just remove the cause of all this THE RENTERS REFORM BILL, we want to retain our Customers not get rid of them you morons.

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    I had a Diplomat Family in early 80’s from Libya, their Government covered their rents but not paid to me directly, it was ok for a while he begrudgingly paid me but sometimes late flexibility his mussel, until relations went sour with UK after death of Police woman Yvonne Fletcher rip in 1984. Then the money stopped the arrogance was unbelievable, no rent house deteriorating he told me he wouldn’t pay, wouldn’t leave and said nothing I could do about it. Which was true and the law that’s now being re-introduced. Eventually he & Family were recalled and disappeared, there was rumours about what happened to him afterwards.
    Welcome back to the future 1980’s sitting Tenants.

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    That is a good example Michael. It is impossible to operate a business when the landlord has lost control of his property.

    We encountered a similar situation at around the same time, but wouldn't go ahead with the tenancy because the tenant wasn't going to be the Government itself. We insisted that the rent would be paid by the embassy not from the individual.

     
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    I expect at that time there would have been a few people that would happley blown his brains out, I doubt the police would have looked into that very carefully

     
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    Vibha, even if you sell your home and move into an other one. What do you do with the money you are unlikely to spend it on yourself and you can’t give it away except a limited life times allowance to a son or daughter. When it comes to Inheritance tax there is no difference or distinction between Property or Money for tax purposes I think ?.

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    Don't put the sales proceeds in the bank. I did and they froze my account, I could not even log in. It was a nightmsre trying to unfreeze it and all the time no money for food etc, not accepting deposits not paying our DD's etc. Took 2 weeks in a nightmare sorting it and we even had to prove that we bought the property back in 1975. Fortunately we had kept the documents, but how many people would have them after nearly 50 years?

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