CGT exemption reduction: should landlords sell up now?

Back in the 2022 Autumn Statement, then 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 those historic CGT changes now mean for you and help you decide whether to keep or sell part of your portfolio.

What were the CGT changes?

From 6th April 2023, the annual tax-free allowance for CGT dropped from £12,300 to £6,000. This means that, when you sold a property between 6th April 23 and 5th April 24, you paid tax on gains over this £6000 exempt amount. On 6 April 2024, this exempt amount plummeted still further to a now 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 £293,000. Using Land Registry data, it’s possible to calculate that the average landlord has seen a capital gain of £130,000.

A basic-rate taxpayer selling a property worth £293,000 with a capital gain of £130,000 would have had to pay a bill of £21,240 before 6 April 2023. Higher-rate taxpayers would have to shell out £33,040.

However, now the CGT tax-free allowance has dropped to £3,000, a basic-rate taxpayer will pay more – £22,860.

However there is some good news in respect of Landlords who need to pay CGT at the higher rate, as from 6 April 2024 the higher rate of tax dropped from 28% to 24%. Landlords paying the higher rate selling after 6th April 2024 will now get a bill of £30,480.

Should I sell now?

• Property prices have been going down. 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 CGT changes

It’s not a great time for many landlords, so it may be wise to get some advice about the 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.