Capital Gains Tax Surge Hits Property Investors

A perfect storm of higher tax rates, fewer allowances and rising house prices has combined to raise record amounts of capital gains tax from property investors.

CGT is charged whenever an investor sells or gives away some or all of a property other than their primary home and some other assets, like shares held outside of a tax wrapper, art, jewellery, gold or classic cars.

Around 350,000 people pay CGT yearly, with property investors forking out the most, says think tank the Institute for Fiscal Studies.

Taxpayers are paying the Treasury four times as much CGT as they did 10 years ago.

The tax take for 2024-25 is projected to reach £13.7 billion, rising to £25.5 billion by the end of the current Parliament.

Tinkering with tax rates

One of the main drivers of seemingly ever-increasing CGT is successive governments tinkering with tax rates for property investors.

The annual exempt amount (AEA) works like the personal allowance for income tax, providing a tax-free amount before investors start to pay CGT.

The AEA has collapsed from £12,300 a year in 2022-23 to £3,000 in 2025-26.

At the same time, the AEA has fallen, and tax rates for those disposing of a property that is not their main home have risen.

The rate for basic rate (20 per cent) taxpayers has increased from 10 per cent to 18 per cent, while higher rate taxpayers (40 per cent or more) have seen CGT rise from 20 per cent to 24 per cent.

A basic rate taxpayer would have paid £770 CGT on a £20,000 gain in 2022, but the same gain attracts a CGT bill of £3,060 today. A higher rate taxpayer would have had a bill of £1,540 on the same gain in 2022, but now pays £4,080.

Ways to cut your CGT bill

Married property investors who own a property in their name should consider transferring a share of the asset to their partner to claim their AEA, doubling their tax-free cash.

The transfer involves completing and filing a form with HM Revenue & Customs. The process is straightforward. An accountant or solicitor can easily file the paperwork for you.

Don't forget that CGT is only due when a property or other taxable asset is sold or disposed of. Paper profits do not count, so no tax is due on a home bought in 2001 for £50,000 that is now worth £180,000 or more until you relinquish ownership.

Principal Private Residence relief (PPR) can reduce CGT for investors who lived in a property as their main home for some of the time they owned it. The relief removes the period of residence plus nine months from the CGT calculation.

For example, if a home was owned for 20 years and was rented out for nine years and three months, 50 per cent of the gain is exempt from tax (Time lived in plus nine months).