Landlords capital gains tax bills jump £1,600

Mortgage Finance Gazette are reporting how the recent changes to capital gains tax and their impact on landlords, alongside insights into rental market trends. The article can be seen here, and in summary:

  1. Changes to Capital Gains Tax:
    • The annual capital gains personal allowance will be halved from £6,000 in 2023/24 to £3,000 in 2024/25.
    • Despite the capital gains rate cut from 28% to 24% announced by Chancellor Jeremy Hunt, the reduction in the personal allowance will offset the benefit for most higher-rate taxpaying landlords who sell.
    • This change will result in a rise in the capital gains tax bill for landlords, with higher-rate taxpaying landlords seeing an increase of £454 and lower-rate taxpaying landlords facing a jump of £1,674.
    • 89% of higher-rate and 100% of lower-rate taxpaying landlords with homes in their own names will be affected by these changes.
    • Landlords making smaller gains will be hit the hardest, particularly newer millennial investors or those selling cheaper homes in less expensive areas.
  2. Impact on Landlords:
    • Despite the Chancellor’s intention to encourage landlords to sell and add new housing supply to the market for first-time buyers, the changes to capital gains tax are likely to act as a disincentive.
    • Most landlords leaving the market this year will end up paying more tax than they did two years ago.
    • Older investors with larger gains are more likely to benefit from the tax cut compared to newer investors with smaller gains.
  3. Rental Market Trends:
    • The report highlights that rental growth continued to cool in February, with the average rent on newly let homes rising by 7.1% year-on-year, down from 8.3% in January and a peak of 12% in August.
    • Despite the slowdown, rental growth still outpaces inflation, with tenants facing an average increase of £87 per calendar month or £1,044 per year compared to the previous year.
    • There has been an increase in the number of homes available to rent compared to the previous year, but this is mainly due to homes taking longer to let rather than a rise in landlord purchases. Nonetheless, there are still significantly fewer homes available to rent compared to February 2019.

Overall, the passage provides insights into the financial implications for landlords due to changes in capital gains tax and highlights ongoing trends in the rental market, including cooling rental growth and increased availability of rental properties.

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