A Capital Gains Tax increase has been announced and is scheduled to start next month The personal allowance for Capital Gains Tax (CGT) is being halved from £12,300 to £6,000, which means most investors will pay more when they sell their properties.
Despite the fact that the Chancellor, Jeremy Hunt, has reduced the CGT rate from 28% to 24% in the recent Spring Budget, this change is expected to impact most landlords negatively.
Research from Hamptons estate agents indicates that 89% of landlords in the higher tax bracket and all landlords in the lower tax bracket will face higher CGT bills starting in April.
Aneisha Beveridge, head of research at Hamptons, commented that although the intention behind the CGT change was to prompt landlords to sell their properties and increase the housing supply for first-time buyers, the overall effect will likely discourage them from doing so.
She pointed out that landlords selling this year will be paying more tax than they would have two years ago. The CGT changes will mostly affect those who’ve made smaller profits, like younger investors or those selling less expensive properties in cheaper areas. On the other hand, long-term landlords with larger gains could benefit more from the tax decrease.
Beveridge also explained that these changes to CGT rates only affect landlords who own properties in their personal names, while an increasing number of investors who hold properties through companies will pay corporation tax instead.
She noted that many landlords are now using company structures because they offer not just tax efficiency but also more stability, as the government is less likely to alter corporate tax regulations than individual taxation.
Landlords who report a capital gain of less than £68,000 will be at a disadvantage compared to their situation two years ago.
On average, landlords in 2023 sold their buy-to-let properties for £110,000 more than they bought them for.
| Length of Buy-To-Let Ownership | Average CGT Bill Before April 2022 | Average CGT Bill Starting April 2024 | Change (%) | Change (£) |
| Less than 5 years | £9,410 | £10,298 | 9% | £888 |
| 6-10 years | £11,274 | £11,895 | 6% | £621 |
| 11-15 years | £13,645 | £13,928 | 2% | £283 |
| 16-20 years | £12,394 | £12,855 | 4% | £461 |
| More than 20 years | £20,761 | £20,027 | -4% | -£734 |
| Overall Average | £12,449 | £12,903 | 4% | £454 |
The Slowing Rate of Rent Increases
Last month, the rate at which rent prices increased showed signs of slowing down. In February, rents for newly leased homes in Great Britain went up by 7.1% compared to the previous year, which is less than the 8.3% increase in January and significantly lower than the 12.0% peak in August 2023.
Although rent prices are still outpacing inflation, their rapid growth has slowed somewhat due to more properties being available for lease. This means that tenants moving into a new place now would pay about £87 more each month, which amounts to £1,044 more annually than they would have last year.
One reason for this slowdown is that rental properties are staying on the market longer, not necessarily because of an increase in landlord acquisitions. In fact, compared to February 2019, there’s still a 41% reduction in the number of rental homes available.
In Scotland, rental prices have seen the most significant increase, with an 11.0% rise in the cost of newly leased properties, showing that landlords are adjusting rents to reflect current market rates. Both Scotland and the East of England are still experiencing rent growth in the double digits.
Beveridge added that while rent growth is slowing, tenants are still under financial pressure, and landlords who have to refinance may find some relief in the lower mortgage rates of 2024 compared to those who refinanced last year. This is helping to bring some balance to the financial situation for landlords with mortgages.
