WARNING: Chancellor’s CGT changes could cause buy-to-let fire sale

Changes to Capital Gains Tax (CGT) announced in last week’s budget could cause a buy-to-let property fire sale as landlords rush to remodel their portfolios or ditch them entirely.

CGT is charged on any profit someone makes on an asset that has increased in value, when they come to sell it.

Latest figures from HMRC say that there are more than 2.5 million landlords in the UK although the real figure could be much higher. Most of those residential properties will have risen in value during the course of ownership.

AVERAGE

Data from Hamptons suggests that the average landlord who sold this year in England and Wales sold their buy-to-let for £98,050 more than they paid for it.

After deducting 10% for costs, this would leave the average higher-rate taxpayer with a £21,260 CGT tax bill.

There has been phenomenal growth in company buy-to-lets over recent years as landlords looked to swerve taxes and maximise profits but it was also announced last week that the dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024.

DIVIDENDS

It means that by 2025, anyone receiving dividends of above this amount will pay tax on them at a rate depending on how much other income they receive.

Meanwhile the Annual Exempt Amount for CGT will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.

For buy-to-let investors who own property as part of a limited company these changes could be a triple whammy.”

Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, says: “For buy-to-let investors who own property as part of a limited company these changes could be a triple whammy, coming on top of rises in corporation tax.

“They will not only have to pay more tax on dividends on profits from rent but now that CGT has been aligned with interest rates and they sell up, they could be faced with a hefty bill in just one hit.”