In his 2022 Autumn Statement, Chancellor Jeremy Hunt announced changes to the Capital Gains Tax system. In particular, the annual tax-free CGT allowance has now dropped significantly. As a result, these CGT changes are making many landlords wonder whether now is the time to sell some or all of their properties. In this article, we look at what the 2023 CGT changes mean for you and help you decide whether to keep or sell your portfolio.
What are the 2023 CGT changes?
From 6th April 2023, the annual tax-free allowance for CGT has dropped from £12,300 to £6,000. This means that, when you sell a property, you only pay tax on gains over this amount.
In April 2024, it will plummet still further to a miserly £3,000.
How much CGT will I pay?
If you sell a property, the amount of CGT you pay depends on your gains. However, the average house price in England is currently £314,278. Using Land Registry data, it’s possible to calculate that the average landlord has seen a capital gain of £130,000.
According to analysis by London lettings agency Benham & Reeves, a basic-rate taxpayer selling a property worth £314,278 with a capital gain of £130,000 would have had to pay a bill of £21,187 before 6 April 2023. Higher-rate taxpayers would have to shell out £32,957.
However, now the CGT tax-free allowance has dropped to £6,000, a basic-rate taxpayer will pay £22,321. Landlords paying the higher rate will get a bill of £34,721.
Should I sell now?
There are still potential (but not huge) savings to be made by selling a property before 6th April 2024 when the allowance drops again to £3,000. If you planned to sell a property in the near future, it might be worth putting it on the market in good time to exchange contracts by then. However, you also need to take a number of other factors into account:
- If the property sale doesn’t exchange before the end of this tax year, your CGT tax-free allowance will be cut to £3,000 anyway. So you need to be confident your property will sell quickly at a time when house sales are slowing.
- Property prices are currently going down. According to Which?, analysts at Capital Economics expect prices to drop by 12% by mid-2024. You need to consider whether to sell now or wait for prices to rise again. If the value of your property does go up in future, it may more than offset the reduction in the CGT tax-free allowance.
- If you need to re-mortgage in the near future, you will almost certainly have to lock in at a much higher rate than you currently have. This will increase your costs and affect your bottom line.
- You also need to consider how profitable your property is. In recent years landlords’ margins have been hit hard. If you expect only minimal profits – or even losses – now may the time to sell up.
I need some advice about the 2023 CGT changes
It’s not a great time for many landlords, so it may be wise to get some advice about the 2023 CGT changes and other factors affecting your portfolio. You may wish to speak to an independent financial adviser to get an objective view. From an accounting perspective, our buy-to-let specialists can certainly help you identify cost savings and look for more tax-efficient ways of managing your properties. In addition, if you want to simplify your portfolio management and save both time and money, do check out our Landlord Platinum Service for MTD.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration