In his Autumn Statement in November 2022, Jeremy Hunt, the UK’s Chancellor, announced changes to Capital Gains Tax (CGT). These changes came into effect in April 2023 and have certainly made their mark on property investment and it’s now more expensive for investors to sell properties, reducing the potential profits.
The reduction in CGT allowance
One of the biggest changes is the reduction in the CGT annual exemption, set to drop from £12,300 to £6,000 in 2023/24 and investors will have to pay CGT on any gains made on property sales above the new exemption level. For example, if an investor sells a property for £200,000, making a gain after deducting allowable costs of £100,000, and has already used their annual exemption, they will have to pay CGT on every penny of the £100,000 profit.
The increased CGT for higher-rate taxpayers
Another change making waves is the increase in the rate of CGT for higher-rate taxpayers. If you’re a higher or additional rate taxpayer you’ll now pay 28% on your gains from residential property and 20% on your gains from other chargeable assets.
If you’re a basic rate taxpayer, then the rate you pay depends on a few different things, from the size of your gain to your taxable income and whether your gain is from residential property or other assets.
The changes to CGT have hit some property investors hard as it’s not only now more expensive for investors to sell properties, their potential profits are squeezed and they’re finding it harder to grow their portfolios.
Benefits from the CGT changes
But, believe it or not, there are some potential perks to the CGT changes. The drop in the annual allowance may encourage investors to keep their properties for longer, reducing the number of properties on the market and pushing up prices.
Top CGT tips for property investors
Here are our tips for property investors affected by the changes to CGT:
- Plan property sales carefully. Plan any property sales and make sure that you sell when you can make the most profit.
- Consider holding onto properties for longer. Don’t panic sell. Consider keeping properties for longer to potentially avoid paying CGT.
- Invest in different asset classes. Look at investing in different asset classes, such as stocks and shares, to reduce your exposure to CGT.
- Seek professional advice. As with all investments and money matters, we always recommend getting advice from a qualified accountant or tax adviser to understand the changes to CGT and how they may affect your investments.
Overall, the changes to CGT have had a mixed impact on property investment. As we’ve seen, it’s now more expensive for investors to sell properties and the potential profits on property sales aren’t what they once were. On the flip side, there are potential benefits, too, like encouraging investors to keep properties for longer and reducing the number of properties on the market for a better balance when it comes to supply and demand. The fewer properties there are to complete with, the higher price you can command for your own bit of bricks and mortar.
