Capital Gains Tax changes with BTL
The Capital Gains Tax (CGT) annual exempt amount has always been considered quite generous.
Well, that’s set to change from this year, when it reduces from its current level of £12,300 to less than half of that in April 2023 (down to £6,000) before reducing again to £3,000 from April 2024.
This is the latest nail in the coffin for landlords having experienced some challenging changes already over recent years; increased regulation, additional Stamp Duty Land Tax (SDLT) and less income tax relief on mortgage interest mean that some landlords have already exited the market. The ones left may now be wondering whether to do the same thing.
Let’s consider the CGT position for a landlord considering a sale now or later:
Example
Sarah, a higher rate taxpayer, bought a buy-to-let property in 2010 for £210,000. In December 2022 it has increased in value to £312,000. Ignoring any costs she incurred in buying the property, if she were to sell it the capital gain would be:
Sale Price £312,000
Less Purchase Price (£210,000)
Gain £102,000
Less AEA (£12,300)
Chargeable Gain £89,700
As a higher-rate taxpayer, Sarah will pay CGT at the higher rate of 28%, so £25,116 if she sells now. But, if she delays the sale until 5 April 2023, she will pay £26,880 (£1,764 more) due to the reduction in the annual exempt amount.
There are several factors to consider when deciding whether to sell now or later:
There are other regulations that landlords have to comply with as well, to cover such things as electrical and gas safety which also add to annual costs.
The tax rules and regulation have changed a lot over the years and continue to do so; keeping ahead of the game is crucial for any landlord who must be prepared to run rental properties as a business to maximise returns as well as to keep on the right side of HMRC.
I am an Independent Financial and Mortgage Adviser and have worked in Financial Services for over 12 years. During my career I gained experience in assisting both individual and corporate clients.…
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