In the last 15 years many individuals have purchased additional residential dwellings as an investment. The lenders have made it relatively easy to purchase these properties with the aid of a mortgage and the property owners have let them to private tenants. The idea being that the rental income pays the mortgage and, ultimately, the property owner has an income generating asset. In many cases, these investments have been taken out instead of pension products.
However, a number of recent changes is making many buy to let landlords consider their position.
Capital gains tax (CGT) is a tax on the profit made when a taxpayer disposes of an asset that has increased in value. Disposing of an asset includes selling it, giving it away as a gift, transferring it to someone else or swapping it for a different asset. CGT is payable on the difference between the acquisition value and the sale value but there are a number of costs which can be deducted and, crucially, every taxpayer has an annual tax-free allowance. This means that CGT is only payable on the total gains above this level. Currently, the CGT tax-free allowance is £12,300 per year.
It is now necessary to declare the sale of an asset, such as a buy to let property, and pay any tax due to HMRC within 60 days of completion of the sale.
A significant change has been announced in the November 2022 Budget. The Chancellor announced a considerable reduction in this tax-free allowance. It will be cut to £6,000 from April 2023 and to £3,000 from April 2024. This will result in an increase in the amount of tax payable by buy to let investors if they sell their investment properties and make a gain after these thresholds change.
Whilst April 2023 may seem some distance away, in terms of property selling, it will come around very quickly. The property market has experienced significant delays in the last couple of years and anyone thinking of selling an investment property whilst the tax-free allowance remains at the higher level, should consider marketing the property and instructing their conveyancing lawyer as soon as possible. This will enable the conveyancing lawyer to open a file and deal with all due diligence and required form filling in a timely manner. This could make quite a difference in terms of any CGT due on the sale.
To discuss this or any other property matter, contact us.