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CGT planning for buy-to-let owners selling up

Previously, when property prices were on the rise and mortgage costs weren’t so high, buy-to-let properties were a worthwhile investment for many landlords in the UK.

The same can’t really be said in 2024, with inflation and rising interest rates cancelling out savings from the Capital Gains Tax (CGT) rate reduction, and the progressing Renters’ Reform Bill potentially making regulations stricter for landlords.

The government also announced in the Spring Budget that tax reliefs for furnished holiday lets will be scrapped from April 2025, which would make holiday lets less profitable for second home owners, who may decide they would rather sell up.

Landlords worse off with higher CGT bills

While the higher rate of CGT on the disposal of residential property has dropped from 28% to a lower rate of 24%, effective from 6th April 2024, most buy-to-let property owners will still face a higher CGT bill compared to a couple of years ago.

This is because the 4% cut to the CGT rate doesn’t compensate for the annual exempt amount reduction, which has decreased from £12,300 to just £3,000.

Sellers who are basic rate taxpayers will be worse off because the lower rate of CGT
for gains within the basic rate band remains the same, at 18%.

Higher or additional rate taxpayers who sell up with gains lower than £68,000 will also be worse off – for example, newer landlords in areas with lower property values.

Deferring or reducing capital gains

Landlords who sold their buy-to-let property before the rate reduction, facing CGT liability at the previous higher rate, could attempt to reduce this by deferring their gains through an enterprise investment scheme (EIS).

However, this is a risky strategy – while the gain won’t come back into charge until the investment is realised, there is the possibility that some or all of it could be lost, or that the CGT rate could increase again in the meantime.

That said, the CGT rate reduction could be a useful bonus if you were already considering using an EIS for the 30% relief on Income Tax.

Of course, there are other options landlords could pursue to minimise their CGT bills, such as claiming expenditure, disposing of investments that are already at a loss, or moving properties into join ownership with their spouse.

Need help planning for CGT?

HMRC has provided a guide to tax when selling property on the government website, but if you’re a landlord in need of assistance with financial organisation and tax planning for your buy-to-let, you may want to consult professional accountants.

Here at gbac, we have a team of skilled accountants in Barnsley who can provide a range of services, from managing Service Charge Accounts to assisting with property tax planning, including Capital Gains Tax
and Inheritance Tax.

Reach out by calling us on 01226 298 298 or emailing info@gbac.co.uk to find out how we can tailor our services to help you with buy-to-let property sales.