A Closer Look at the Recent Capital Gains Tax Cut

Mar 21, 2024

Finally, the main event. The moment we had all been waiting for. The Chancellor announced a cut to Capital Gains Tax on the sale of residential property. Property gains, the one type of gain that attracts a higher rate of tax relative to other assets, will be taxed at 24 percent, down from 28 percent for higher earners.

Happy days surely? We have argued for years that this extra taxation has a perverse impact on the market and is actually holding back natural disposals of stock, locking up funds that might otherwise be reinvested. This must be a major victory for common sense.

Perhaps. Perhaps not.

A cut is certainly to be welcomed. The rate for gains from residential property should never have been set at 40 percent higher than for other chargeable assets. Reducing the rate to 24 percent is an improvement, but it’s not the whole story.

Over the last few years, the Government has been steadily reducing the annual tax-free amount of gains an individual can realise before CGT kicks in. In 2022/23 it was £12,300, today it is £6,000, and from April it will drop to £3,000. This means that a landlord disposing of property and realising a gain will still likely pay more tax at 24 percent than they would have two years ago even with the CGT rate at 28 percent.

For example:

Terry sells a property in 2022, realising a gain of £10,000.

He is a higher-rate taxpayer so will pay 28 percent on any chargeable gains.

He has a tax-free allowance of £12,300. Therefore, his gain attracts no CGT.

June on the other hand sells a property in April 2024, realising the same £10,000 gain.

As a higher-rate taxpayer, she will now pay 24 percent on any chargeable gains.

She has a £3,000 tax-free allowance, so attracts CGT on £7,000 of her gain. Therefore, her CGT bill is £1,680.

A tax cut of 4 percent, results in a four-figure tax hike.

Only property gains of more than £67,000 will attract less CGT after April 2024 than they would have two years ago. And even then, the benefit is marginal at best. If you have any questions on how this affects your taxes then please feel free to reach out to us on 01902 711370 or email enquiries@uklandlordtax.co.uk.

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