Which Landlords are Hit Hardest as a Result of Recent Capital Gains Tax Changes?
Capital Gains Tax (CGT) was an area that came under review in the Autumn Statement. The CGT annual exempt amount (AEA) has been reduced to £6,000 for the 2023/4 tax year and a further fall to £3,000 from April 2024. So what are the numbers involved and which landlords will be hit the hardest?
The CGT annual exempt amount (AEA) is currently £12,300 and has built up over time with inflation. The Chancellor recently announced a reduction in this to £6,000 for the 2023/4 tax year and a further fall to £3,000 from April 2024.
An excellent article by Graham Norwood (Landlord Today) explains the impact in more detail:
Changes to capital gains tax announced in Jeremy Hunt’s recent Autumn Statement will see the average landlord pay as much as £1,764 more if they do decide to exit the buy-to-let sector next year.
Lettings agency Benham and Reeves analysed the capital gains seen on a buy-to-let investment across each county of England over the last nine years - the average length of time a landlord owns their portfolio - as well as the current tax payable if they exit at both the basic and higher rate of tax, as well as how this differs to what they will pay once changes to the capital gains tax allowance come into force from next year.
The research shows that with the current house price across England now sitting at an average of £314,278, the average landlord has seen capital gain to the tune of £130,000 over the last nine years based on the latest available house price data from the Land Registry.
With the current capital gains allowance of £12,300, this would mean £117,704 of this £130,000 increase in property value is currently liable for CGT. As a result, the average landlord offloading their portfolio and paying the basic rate of tax would pay £21,187 in CGT today, while this figure climbs to £32,957 for those paying the higher and additional rates of tax.
However, with the capital gains allowance now changing to just £6,000 come the 2023-24 tax year, the average landlord looking to offload their portfolio would be facing a bill of £22,321 at the basic rate and £34,721 at the higher and additional rates of tax.
This means that those on the basic rate of tax will see their potential capital gains tax bill climb by £1,134, while those paying the higher and additional rates of tax will see an increase of £1,764.
When these changes come into force next year, it’s not London that will sit top where the highest capital gains tax bill is concerned, but Surrey. Landlords in the county looking to exit the market would be facing a capital gains tax bill of £38,167 at the basic rate and £59,371 at the higher and additional rates based on the capital appreciation of their investment over the last nine years.
London does rank second, however, with those paying a basic rate of tax facing a CGT bill of £36,922 when exiting the buy-to-let sector with the new changes in place, while those paying the higher and additional rates of tax will pay £57,435.
Buckinghamshire, Hertfordshire, Bath and North East Somerset, Bristol, Essex, Oxfordshire, Kent and West Sussex are also home to some of the highest capital gains tax bills of all counties in England once capital gains tax changes are implemented.