The upcoming change to Capital Gains Tax will cost landlords £2,600 more for every property they sell, estate agency Hamptons has calculated.
Chancellor Jeremy Hunt moved to reduce the annual exempt amount for CGT from £12,300 to £6,000 in last week’s Autumn Statement. This will take effect from April 2023, before the amount halves again to £3,000 in April 2024.
The estimation is based on the average capital gains growth landlords made when they sold a buy-to-let this year – which amounts to £98,050.
In the current climate landlords would be hit by a tax bill of £21,260 for that capital growth, but that will rise by £1,770 in 2023, and by £2,610 in 2024.
The question is whether this latest blow to landlords will drive more investors out of the sector.
The National Residential Landlord Association felt the government should have gone the other way in the Autumn Statement, as it argued that Hunt should have abolished the 3% stamp duty surcharge on investment properties to attract more investors.
Chris Springett, tax partner at wealth management and professional services firm Evelyn Partners, said: “Many second homeowners and landlords – accidental as well as buy-to-let investors – who are looking to sell a property now face a higher tax bill on the profits they have made from rising house prices.
“The differences in tax bills from the allowance cut for some property transactions might be relatively small in absolute terms, but it is the latest in a series of moves by the Treasury in the last decade that have dented the attractions of property as an investment.”
If landlords operate as an individual they will pay 18% on capital gained if they are a base rate taxpayer, or 28% as a higher rate taxpayer.
CGT is added to a person’s normal income to decide what rate it should be charged at, which means a number of basic rate taxpayers are pushed into a higher tax bracket.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Capital gains tax is already a nightmare for landlords, who can’t stagger their gains over a number of years, so only get one shot at using their capital gains tax allowance.
“The reduction to £6,000 and then £3,000 over the next two years is going to mean anyone selling up after this faces an even bigger bill.”
Coles added: “The trouble with cutting allowances like this is that it can force landlords to hoard assets, because they know if they hang onto their property portfolio until they die, their CGT bill will be reduced to zero – so a cut in allowances ends up actually reducing the amount of tax the taxman receives.
“The government is likely to have staggered this reduction in an effort to give landlords time to sell up before the full impact of the changes kick in.
“However, once the allowance is just £3,000 it may well mean landlords are increasingly wary about selling up.”