Capital Gains Tax Increased For Landlords

by | Tuesday 28th Mar 2023 | Mortgage News

A new update to capital gains tax rules coming to the UK within the next few weeks has left both professional and amateur landlords worried about a potentially crippling tax bill if and when they decide to sell a property. A new change in the law that will see the tax free allowance value when selling a property drop by 50% in April 2023, meaning landlords will have to pay more tax on profits they make from sales.

What Is Capital Gains Tax UK?

By now we should all realise that nothing in life is free unfortunately! Even if you do well for yourself and build up assets like property, bonds, shares and stock, the government will want a slice of the pie should you intend on selling up and gaining income. They do this by collecting capital gains tax, a tax charged on profits from the sale of these things.

Currently, depending on the individual’s own income and tax bracket, capital gains tax is offers a non-taxable allowance of £12,300 and the tax is then charged at between 18 and 28% of the remaining sale proceeds. Meaning that you will not be charged any tax on £12,300 worth of profit but will be charged on the other 18-28% you make when selling an asset.

For property owners, this means that currently you can sell off part of your property portfolio and save save tax on at least £12,300. However, recent changes to capital gains tax announced by the Chancellor of the Exchequer Jeremy Hunt would cut the non-taxable allowance amount by over 50% in April 2023 to £6,000. A move that is likely to be reduced again even more in April 2024. The main reason for this being to claw back monetary losses that the UK has incurred over the last few years.

What Does A Change In Capital Gains Tax Mean To Property Owners?

Well, as we have already mentioned, a change in capital gains tax means that property owners such as buy-to-let landlords who are looking to sell up could see their investments depleting. If you have your money invested in property and were hoping to draw this money out by the sale of the asset in the future, you are likely to be left with less profit than you initially expected as tax will be charged on more of the sale profit than it once was. However, despite dropping by 50%, the reduction in profits really are minimal for the time being. And chances are that most sellers won’t be too badly impacted.

There has also been rumoured a percentage tax increase for capital gains tax too, which could see tax being charged at 20% and 40% rather than the current 18% and 28%, however these seem to be just rumours for the time being and nothing has been confirmed. Of course all of this is subjective and how much you earn, how much you sell the property for, and how much profit you make are all deciding factors on how much tax you will pay, but if you are a property or properties owner who is concerned about their investments and tax you might pay, it is always advisable to speak with a professional financial advisor and also a solicitor who will be able to let you know what taxes you might be liable for. But here is an example of how tax could change for a landlord.

Capital Gains Tax Example

Pre-April 2023

  • Landlord earning £101,000 a year
  • Selling a property for £400,000
  • £100,000 mortgage outstanding
  • £300,000 profits from sale
  • Pre-April 2023 non-taxable allowance £12,300
  • Tax will be charged on £287,700
  • As a high-rate tax payer, capital gains tax will be charged at 28% = £80,556
  • Profit after tax = £219,444

Post-April 2023

  • Landlord earning £101,000 a year
  • Selling property for £400,000
  • £100,000 mortgage outstanding
  • £300,000 profit from sale
  • Post-April 2023 non-taxable allowance £6,000
  • Tax will be charged at £294,000
  • As a high-rate tax payer, capital gains tax will be charged at 28% = £82,320
  • Profit after tax = £217,680

Speak To A Property Expert

If you or anyone you know is a buy-to-let landlord with money tied up in investment properties, you can always discuss your portfolio or your concerns about it with one of our expert advisors. We are here to help and available for a conversation whenever suits you best. Call us today.

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