Capital gains tax changes – how much could they cost landlords?
3-minute read
The tax-free allowance for landlords selling a property is being reduced significantly over the next two years. This means many landlords could be hit with a higher capital gains tax (CGT) bill.
Find out how much it could cost you, which regions could be hardest hit, and how the tax changes could impact landlords’ selling decisions.
Capital gains tax changes confirmed in Autumn Statement
As part of the recent Autumn Statement, Chancellor Jeremy Hunt confirmed that the tax-free allowance for capital gains tax will be reduced from £12,300 to £6,000 in April 2023.
It will then be reduced from £6,000 to £3,000 in April 2024.
Landlords have to pay capital gains tax on the profit they make when they sell a buy-to-let property.
A lower tax-free allowance means landlords will have to pay more capital gains tax when they sell a property in the coming years.
Read our guide to capital gains tax to find out more about how it works.
Average landlord CGT bill to rise by £2,600+ in 2024
When the tax-free allowance drops to £3,000 in April 2024, the CGT bill for the typical landlord in England and Wales will rise by £2,610 (12 per cent).
This is according to research from estate agency Hamptons, which shows that when the allowance drops to £6,000 next April, the average landlord selling a property will pay £1,770 more in CGT.
The agency’s analysis found that the typical landlord who sold a property this year paid a CGT bill of £21,260 if they’re a higher rate taxpayer.
This means the average CGT bill for landlords, when factoring in 10 per cent for costs, could rise to over £23,000 by 2023 and almost £24,000 by 2024.
If average property prices continue to rise , landlords’ tax bills when they sell could be even higher.
Although the Office for Budget Responsibility forecasts that average property prices could fall in 2023 and 2024, it predicts prices will rise by over three per cent in 2027.
Which regions will be hardest hit by CGT changes?
Average property prices in London, the South East, and East of England have increased the most in recent years.
As a result, Hamptons’ data shows that landlords in these regions will have to pay the highest CGT bills when they sell buy-to-let properties.
Landlords in Wales, the North West, Yorkshire and the Humber, and the North East have made the smallest gains when selling a property in 2022, meaning their CGT bill is likely to be lower.
The table below shows the average CGT bill for a higher rate taxpayer in each region now and in the next two years. The figures factor in 10 per cent costs and the changes to the tax threshold.
Region | Average profit (-10% costs) | Avg 2022 CGT bill | Avg 2023 CGT bill | Avg 2024 CGT bill |
London | £275,787 | £73,780 | £75,540 | £76,380 |
South East | £114,777 | £28,690 | £30,460 | £31,300 |
East of England | £97,479 | £23,850 | £25,610 | £26,450 |
South West | £79,380 | £18,780 | £20,550 | £21,390 |
West Midlands | £55,008 | £11,960 | £13,720 | £14,560 |
East Midlands | £51,939 | £11,100 | £12,860 | £13,700 |
Wales | £48,006 | £10,000 | £11,760 | £12,600 |
North West | £43,974 | £8,870 | £10,630 | £11,470 |
Yorkshire and the Humber | £40,779 | £7,970 | £9,740 | £10,580 |
North East | £20,925 | £2,420 | £4,180 | £5,020 |
England and Wales | £88,245 | £21,260 | £23,030 | £23,870 |
CGT bills are also likely to rise significantly for basic rate taxpayers. This is because if they make a large profit on their property, they could be forced into the higher rate tax band.
Are landlords planning to sell despite tax changes?
Challenging conditions, including higher mortgage costs and increased regulation, could encourage landlords to sell properties.
Simply Business research from earlier this year found that almost half of landlords have sold a property in the last year or are planning to sell in the near future.
This chimes with a recent study by Swedish bank Handelsbanken, which found that a fifth of landlords are planning to sell in direct response to the cost of living crisis.
With the capital gains tax-free allowance dropping significantly in the coming years, those thinking of selling could be encouraged to sell up sooner rather than later to make the most of the £12,300 allowance.
On the other hand, some landlords who were planning to sell in the next few years may hold on to their properties and wait for property prices to grow before taking the tax hit.
Landlords could benefit from higher rental demand
If landlords do decide to keep hold of their properties rather than sell, they could benefit from increased demand from tenants.
Data from Rightmove shows that the number of people enquiring about homes to rent in November was up 23 per cent on the same time last year.
Letting agents report that they’re managing an average of 36 enquiries for each property.
Rightmove says this is due to prospective buyers putting their plans on hold in the hope that mortgage rates will drop in the coming months.
Read more property management tips for buy-to-let landlords
Are you considering selling a buy-to-let property? Let us know in the comments below.
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Written by
Conor Shilling
Conor Shilling is a Copywriter at Simply Business with over two years’ experience in the insurance industry. A trained journalist, Conor has worked as a professional writer for 10 years. His previous experience includes writing for several leading online property trade publications. Conor specialises in the buy-to-let market, landlords, and small business finance.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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