A significant change awaits landlords come April, with the vast majority, both in higher and lower tax brackets, facing an uptick in their Capital Gains Tax obligations. This adjustment stems from the reduction of the annual capital gains personal allowance from £12,300 in 2022/23 and £6,000 in 2023/24 to a mere £3,000 in 2024/25.
This substantial decrease in the personal allowance is poised to have a notable impact on landlords’ tax liabilities, particularly those in higher tax brackets. Despite the Budget’s announcement of a reduction in the CGT rate from 28% to 24%, many landlords will find themselves grappling with higher tax bills due to this decrease in the personal allowance.
As a result, the anticipated CGT rate cut might not necessarily translate into significant savings for landlords, especially those subject to higher tax rates. This shift underscores the importance for landlords to reassess their tax strategies and financial plans in light of these impending changes to ensure they remain financially resilient in the evolving landscape of property taxation.
The reduction in Capital Gains Tax (CGT) from 28% to 24% presents potential savings for the average higher-rate taxpaying landlord, amounting to approximately £3,800 upon property sale. This projection is based on the assumption that landlords sell their buy-to-let properties for an average profit of £110,000 compared to their purchase price, prior to any allowable deductions.
However, amidst this CGT rate reduction, landlords face a notable decline in the annual capital gains personal allowance. From £12,300 in 2022/23 and £6,000 in 2023/24, the allowance is set to decrease to a mere £3,000 in 2024/25.
When factoring in both the reduction in higher-rate CGT and the decline in the annual capital gains personal allowance, the average CGT liability is expected to increase by approximately £454 or around 4%. This combined effect underscores the nuanced impact of taxation changes on landlords’ financial considerations.
Despite the reduction in tax rates announced in April 2024, a substantial portion of higher-rate taxpaying landlords, comprising approximately 89% of this demographic, will find themselves facing higher tax liabilities compared to their positions two years prior. This shift in tax dynamics underscores the nuanced impact of tax policy adjustments on different segments of property owners.
For landlords positioned within the higher-rate tax bracket and reporting capital gains below the £68,000 threshold, the revised tax framework results in a less advantageous financial outcome than what they experienced in previous years. This scenario highlights the intricate interplay between tax brackets, personal allowances, and actual gains realized from property transactions.
The revised tax landscape, characterized by lower personal allowances alongside adjusted tax rates, introduces complexities that landlords must navigate diligently. While individuals reporting modest capital gains face increased tax burdens, those with larger gains stand to benefit from the revised tax structure, reflecting the differential impact across varying levels of property investment returns.
According to analysis conducted by lettings agency Hamptons, newer landlords and investors located in Northern regions are poised to experience the most significant uptick in their Capital Gains Tax (CGT) bills starting in April, primarily due to their tendency to realize smaller gains from property transactions. Aneisha Beveridge, Head of Research at Hamptons, underscores that while the government’s intention may have been to incentivize landlords to divest their properties and bolster housing supply for first-time buyers, the cumulative impact of the CGT adjustments is more likely to dissuade such actions.
Beveridge highlights that the revised CGT framework will disproportionately affect landlords realizing minimal gains, a demographic often comprising younger millennial investors witnessing slower price appreciation or those selling properties in more affordable regions. Conversely, seasoned investors with lengthier tenures in the property market and larger accumulated gains are poised to benefit more significantly from the tax rate reduction.
Moreover, it’s noted that the Chancellor’s CGT revisions exclusively target higher-rate taxpaying landlords with properties registered under their personal names. In contrast, an increasing number of investors with properties held within corporate entities are subject to corporation tax on sales proceeds post-deductible expenses. This divergence in tax treatment underscores the evolving landscape for property investors navigating varying tax regimes based on ownership structures.
“While tax efficiency has been the major draw of a company structure, increasingly it’s also the certainty and stability it offers. Chancellors have generally proved less likely to tinker with company tax rules than individuals.”
