The Brief: Chancellor Jeremy Hunt announced yesterday that the capital gains tax (CGT) allowance will be reduced from £12,300 to £6,000 from April 2023 and £3,000 from April 2024. During his Autumn Statement, Hunt pledged to hit the government’s target of raising £40 billion and £55 billion next year.
Why It Matters: The reduced threshold will affect many in the real estate industry who plan to sell their property. For instance, landlords and owners of second homes will now be pressured to sell their BTL or second residential properties before the new implementation date kicks in, or will be forced to hold off their intentions to sell for now. Currently, those who fall in the basic income tax band will pay 10% on their gains, and another 18% on gains from the sale of residential property. However, if they are higher-rate taxpayers, they will pay 20% and 28% on gains and residential property sale, respectively. Since CGT allowances cannot be rolled over into the next year, expect those who plan on selling their second homes to flock to the market before April of next year.
Finanze Foresights: The planned fiscal rescue package will affect many taxpayers, as expected during the rundown to Hunt’s announcement. Investor appetite for BTL properties has been strong since last year, especially for areas outside London such as the North East region where yields tend to be higher. However, once they sell their properties in the next few years, they’ll be paying more capital gains on properties that earn them a profit. And there’s an incentive for landlords to pull out of the market because of soaring mortgage rates and unfavorable regulations (such the 3% stamp duty surcharge remaining when the stamp duty tax cut expires in 2025). If more rental properties are sold to non-investors, as current trends indicate, average rents will continue to spike due to the low availability of rental supply.
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