Exploring the Capital Gains Tax changes

Sell, diversify or invest? How landlords can make the best of the Capital Gains Tax changes from April 2023

  • Capital Gains allowance to significantly reduce to £6,000
  • Further reductions planned for 2024
  • Rental properties are in high demand, and supply is low, offering the potential for new investment properties

From April 2023, the Capital Gains allowance in the UK will be halved from £12,300 to £6,000, with plans to reduce it further to £3,000 in 2024. Landlords selling investment properties will see an increase in their tax bill, posing the question: is now the right time to sell up? Should landlords diversify or invest in more properties?

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What is Capital Gains Tax in the UK?

Just to remind anyone unfamiliar with the tax system in the UK, Capital Gains Tax is a tax paid on the profit upon the sale or disposal of an asset that has increased in value. The asset could be a personal possession, a second home, or shares not held in an ISA.

Landlords can expect to pay Capital Gains Tax on buy-to-let investments. When selling a rental property that has increased in value, the owner will pay tax on the profit. For example, if you purchased a property for £500,000, and sold it for £550,000, the total profit would be £50,000 – which would be subject to Capital Gains Tax.

Capital Gains Tax is 28% for higher-rate taxpayers and 18% for basic-rate taxpayers. With the drastic change in tax allowance, landlords will now expect to pay thousands more when they sell an investment property.

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Strategic plans ahead of changes to Capital Gains Tax

The pandemic drove renters out of the city for a few years, increasing maintenance and energy costs. With the changes to tax rates, buy-to-let investors haven’t had it easy. Naturally, property investors are cautious about their next move and must consider a long-term strategy that leads to long-term gain.

Selling weaker properties ahead of the Capital Gains Tax threshold changes has been a strategy for some, while others choose to diversify into furnished holiday lets to generate more revenue. Landlords looking further ahead have seen potential growth opportunities during the current climate and have decided to ride out the storm – and even make more investments.


A positive outlook for landlords

Prices, interest rates and taxes may be increasing, but post-pandemic demand for rentals remains high – creating huge opportunities for landlords looking to expand their portfolios. The Royal Institution of Chartered Surveyors have already reported huge demand for rental properties. March 2023 marked a five-month high for demand in the sector as a shortfall of properties took effect.

As Central London Estate Agents, in recent months, we have seen demand outstripping supply, average time on the market hitting record lows and the prime London lettings market doing a complete 360 post-pandemic. Reduced discounts and void periods, increased rent prices, and huge demand for rentals all lead to excellent conditions for any landlord looking for further investments.


Future-proof investments

While the tax increases may cause caution, there are options for landlords to remain in the buy-to-let market and consider further investments. Now is the time for landlords to develop a long-term strategy to get the best return, even during turbulent times.

At Berkshire Hathaway HomeServices London, we are experts in the property market and prime London lettings property management. Whether you’re considering selling weaker properties, diversifying, handing down assets to future generations or increasing portfolios, we can advise you on your next move with the Capital Gains Tax changes in mind – and our exclusive mortgage providers, Connaught Private Finance, can help you plan head.

Discuss your investment with our team today.


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