CGT on rental property fuelling a record tax take?

It’s fair to say that the pressure has been on private sector landlords for a few years now. First the loss of mortgage relief cut into individual landlords’ profits. This was followed by a raft of new regulations, making property management more onerous and expensive. And soon the buy-to-let sector is likely going to be hit by the BTL sector plans of a new Labour government.

CGT take is rising

In the 2021-22 tax year, Capital Gains Tax revenue hit an all-time high of £14.3 billion. According to HMRC figures, 323,000 people paid CGT during the year. Their average bill was £44,272.

By comparison, the taxman only took £3.8 billion in CGT a decade ago. What has caused such a large increase?

Is CGT on rental property behind the rise?

According to an article in the Daily Telegraph, one of the key drivers behind the increased CGT take is the buy-to-let sector.

It cites a number of other factors that have eaten into landlords’ profits. These include a 3% Stamp Duty (5% from October 2024) surcharge and regulations such as the tenant fee ban.

Certainly, the figures cited in the article suggest than many landlords have started selling up. 130,000 buy-to-let owners sold up in 2020. They were followed by a further 201,000 in 2021.

Many of these landlords may also have been spooked by an Office of Tax Simplification Report. This recommended aligning CGT rates with Income Tax. If this were to go ahead, it’s forecast that the Treasury would take an extra £14 billion per year. With the change to a Labour government, this looks even more likely and could be brought in anytime.

CGT allowance reduction on rental property

Another factor that may be worrying landlords are the reductions in the CGT tax free allowance down to a mere £3,000.  This will bring many more people into the CGT trap – especially as house prices have been rising steadily with only recent signs of a downturn. Rapidly rising inflation will also eat away at the CGT threshold in real terms.

Should I be worried about CGT?

If you are a landlord, you need to make a judgement about whether your buy-to-let properties will remain profitable. Some landlords are buying new properties via a limited company, which can deliver tax advantages. However, transferring properties you hold as an individual into a company can land you with a big CGT bill. This is because ownership is passing from you to the company.

One thing’s for sure: at a time when buy-to-let margins are shrinking, getting professional advice is more important than ever. That’s why THP has put together its MTD for Landlords – Platinum Service. This gives landlords free accounting software designed for property portfolios and marries it up with expert tax planning advice. In effect, you get the tools to manage your properties better and get your own buy-to-let specialist accountant working for you.

I need to sell a property. What do I do about CGT?

If you do need to sell a property, it’s a good idea to get tax advice before the sale. Our accountants may be able to find legitimate ways of reducing your tax bill. Do give them a call if you think they may be able to help.

One last word of warning: these days you have to submit your CGT return and pay the bill within 60 days of selling your property. If you don’t, you can get hit with fines and penalties. To help you avoid these, our Fast Track CGT Service is for you. Once you’ve supplied us with the right paperwork and information, we can calculate and submit your CGT return within 48 hours. To find out more, please visit this page.