How Capital Gains Tax changes will affect landlords from 2023

In this blog post, we examine the most important Capital Gains Tax changes that landlords and property investors should be aware of and how it may affect those looking to sell in the near future.

If you sell a property owned personally that hasn’t been your main residence during your full period of ownership, such as the sale of a buy to let property, you may need to pay Capital Gains Tax.

The gain is generally calculated as the difference between the purchase price and the sales price. Costs of buying, selling and improving the property would reduce the gain and there is also an annual Capital Gains Tax free exemption (£12,300 for the 2022/23 tax year) which can also be deducted, if not used elsewhere.

Changes to the Capital Gains Tax threshold announced in the Autumn Budget will see the current annual exempt amount go from £12,300 to £6,000 from April 2023. It will then be reduced to only £3,000 from April 2024.

Where a property is jointly owned, this means that you could lose £18,600 in tax free allowance between each of you by April 2024, resulting in approximately £5,000 of additional capital taxes due if you are a higher rate tax payer.

Provestor’s Head of Tax, Nadeem Raziq, gives an insight into what the recent CGT changes mean for landlords:

“We know landlords are already feeling the pinch when it comes to refinancing their properties as a result of higher interest rates. One option for them is to think about selling some of their weaker properties. If this is the case then the recent CGT announcement could accelerate your plans.

“As ever, each landlord has their own strategic plan in terms of what they want to achieve in the long term. Some may prefer to diversify their portfolio and move into sectors such as furnished holiday lets or Airbnb to fight the rising costs with more revenue generated.”

Given the current state of the property market and economic conditions, some landlords may prefer to keep their properties rather than sell them.

According to Rightmove there is a serious shortage of available rental properties on the market whilst the demand for them increases nationwide. Demand is up 20% compared to last year, whilst the total number of properties to rent is down by 9%. Rightmove says this is due to rising mortgage interest rates with first-time buyers no longer able to afford the property they want.

So, with that being said, landlords may benefit from not jumping ship too soon. With the increasing demand from tenants for homes to rent and some landlords selling up, it may be a good time to seize opportunities to acquire properties from those exiting the market.

“Understanding your long term strategy here is key. If you have a plan to remain in the buy–to-let market, then riding out the uncertainty may not be the worst idea.

"This in fact could be a good opportunity to do some planning in terms of how you hold your investment, whether they can be better managed in another vehicle or whether it's time to consider doing some estate planning and passing down assets to your next generation.”