The Impact of CGT on Private Landlords

Landlords are treated as cash cows by councils by a government that seems hell-bent on destroying private rentals.

No matter which way they turn, landlords face a financial squeeze.

Landlords who want to soldier on with buy-to-let in an increasingly hostile environment must spend an average of £10,560 per property to reach a C energy proficiency certificate rating or remove the property from the market.

Those who see an opportunity with Airbnb-style holiday lets must meet draconian rental quotas or face up to 300 per cent council tax.

Shared house landlords are facing increasing licensing costs of £1,000 or more imposed by councils.

A massive rise in CGT paid

The Treasury benefits from a massive hike in Capital Gains Tax receipts as private landlords pay an exit tax when selling a former rental home or holiday let. 

And sky-high buy-to-let mortgage rates of 6 per cent or more have slashed profit margins for many property businesses.

Many lenders blame high-interest rates for a drop in house prices, which have dropped for four months.

New data from HM Revenue & Customs show a 15 per cent leap in CGT paid across the board and a jump of 20 per cent in the number of taxpayers caught in the CGT net.

The figures reveal nearly 140,000 taxpayers were involved in more than 150,000 property disposals worth £1.8 billion in tax last year.

How CGT has increased

The Treasury’s CGT take is likely to grow. Chancellor Jeremy Hunt cut tax relief through the CGT annual exempt amount in Budget 2023 to become the latest tax relief phased out for property investors.

Previous chancellors cut tax relief on mortgage interest, reworked how to compute property business profits and scrapped lettings relief.

Property owners could claim £12,300 relief through the AEA last year, but he sliced the amount to £6,000 for 2023-24 and to £3,000 for the 2024-25 tax year.

The total amount of property disposals subject to CGT totalled £9 billion.

HMRC explained that the CGT figures increased for three reasons:

• A rise in the number of taxpayers liable for CGT
• Higher house prices
• The changes in the AEA

Capital Gains Tax FAQ

What is capital gains tax for landlords?

Capital gains tax - CGT - is a tax paid on any gain from the disposal of a property excluding someone’s primary home. CGT is paid on selling or gifting a buy-to-let, shared house, or holiday let.

What is the CGT rate?

The CGT rate on a property depends on the owner’s earnings for the year. Basic taxpayers who pay income tax at 20 per cent on earnings up to £50,270 a year pay CGT at 18 per cent, while higher rate taxpayers have a 28 per cent rate.

Can private landlords claim business asset disposal relief?

Business Asset Disposal Relief is available for landlords disposing of self-contained holiday lets. The relief allows landlords to pay CGT at 10 per cent on specific properties.

Who pays CGT?

Anyone who sells, gifts or otherwise disposes of a property is liable for CGT on the gain.

How is a capital gain calculated?

The CGT calculation works like this:

1. Take away the purchase price of the property from the disposal proceeds
2. Take away any CGT expenses, like purchase stamp duty, legal costs related to the purchase and disposal
3. This leaves the chargeable gain
4. Add the chargeable gain to your earnings for the year.
5. Apply the AEA and any tax reliefs/allowances
6. The remaining amount is the taxable gain
7. The CGT rate is 18 per cent on any amount between your annual earnings and £50,270 and 28 per cent for any amount over £50,270.

Do I pay CGT if I gift a property?

Even if you give away property and receive nothing in return, you must pay CGT on any paper profit. The same calculation applies, and instead of a sale price, the property's open market value slots into the workings.

If you sell the property at less than market value to avoid CGT, the tax man will recalculate your return using the home’s market value instead of the sale price.