As a landlord, buying and selling properties to strengthen your portfolio is something that you’re probably used to. However, sometimes changes occur which need to be taken into consideration, such as the capital gains update announced in the government’s autumn budget.
Here, we take a look at essential capital gains tax information for landlords and what it is you need to know as we enter the 2023/24 tax year.
What is capital gains tax?
Broadly, capital gains tax is a tax that you pay when you sell certain assets that have increased in value since you purchased them. For landlords, this generally means buy-to-let properties. For example, if you bought a rental property for £100,000 and then sold it a few years later for £120,000 you’d have made £20,000 – and this is the amount you’d have to pay capital gains tax on.
Any costs incurred through buying, selling, or improving the property, such as solicitors and estate agents fees, can be deducted from the taxable amount.
What changed in the autumn statement?
Until now, the annual capital gains tax exemption amount has been £12,300, which means that you would only need to pay tax on anything gained over this amount. However, in the government’s autumn statement, they announced that this exemption amount would be decreasing to £6000 from 6th April 2023 for the 2023/24 tax year, and again down to £3000 for the 2024/25 tax year.
For example, if you were to sell a rental property and make between £0 and £12,300 currently, you wouldn’t pay capital gains tax on this. From the 6th April, this will only be true on sales where you make between £0 and £6000. As a basic rate tax payer, you’ll pay 18% on anything above this, and then 28% as a higher/additional rate tax payer.
What does this mean for landlords?
If you’re not looking to sell your rental properties, this change won’t really affect you – although you might want to keep an eye out for future capital gains tax announcements should you want to sell further down the line.
Should you be thinking about selling a rental property, this could impact your decision on how soon to get the ball rolling, as waiting until the 2024/25 tax year would see you paying capital gains tax on an additional £3000 of profit.
As landlords ourselves, we understand the pressures that come with knowing when to sell a rental property and are on-hand to help should you need advice on how to get the most our of your portfolio. Contact us today to chat with our knowledgeable team.