How Capital Gains Tax changes will affect landlords from 2023
As a landlord, you’ll be affected by changes to the Capital Gains Tax (CGT) from 2023. Here’s what you need to know and how to prepare.
From April 2023, landlords selling a property will be subject to higher Capital Gains Tax payments.
From April 2023, landlords who sell a property will be required to pay higher Capital Gains Tax (CGT). All types of properties are affected by the changes, which have been brought into effect by the government in order to raise additional tax revenue. It means sellers may have to pay up to 28% tax on profits they make from a property sale, depending on the type of seller and their individual circumstances. For those landlords with more than one property, this could prove to be a difficult additional burden in an already-challenging market. It is recommended that anyone affected by this change should seek specialist advice about how its impact can be minimised.
The tax-free exemption amount will go from £12,300 to £6,000 in April 2023, further reduced to £3,000 in 2024.
From April 2023, the tax-free exemption amount will reduce from £12,300 to £6,000. This will further reduce to £3,000 in 2024. This means people will have to pay more taxes on their savings and investments.
CGT is calculated as the difference between the purchase price and sales price, plus deductions for costs of buying, selling, and improving the property.
Capital Gains Tax (CGT) is used to tax profits made when an asset is disposed of or sold. CGT applies to both tangible and intangible assets, most commonly used in cases of property disposal. The amount of CGT owed is calculated as the difference between the purchase price and sales price, plus deductions for costs relating to buying, selling, and investment such as improvements that are associated with the property’s value. It is essential to understand all factors associated with calculating CGT since everyone’s individual circumstances are unique and can have a big impact on the taxes you will owe.
For jointly owned properties this could mean an additional £5k of tax payable for higher rate taxpayers.
Joint ownership of properties is a popular arrangement, particularly for couples and individuals pooling resources together in order to purchase properties. However, this could come with an unexpected surprise in the form of additional tax liabilities that may not have initially been considered. For higher-rate taxpayers, this could mean being liable to £5,000 extra tax payments depending on the value of the property purchased. Financial planning is key in making sure any unforeseen expenses are accounted for before committing to a purchase.
Selling weaker properties earlier may be beneficial due to current economic conditions or landlords can benefit from riding out uncertainty by seizing opportunities from exiting landlords while demand increases.
Despite an uncertain economic climate, some landlords are finding that now may be the perfect opportunity to take advantage of exiting landlords or turn weakness into strength. Selling weaker properties earlier is often the best choice in these conditions, enabling owners to stabilize their financial portfolio and even open up the chance to break into new investments with less risk. Additionally, when demand continues to increase, landlords who choose to sit tight can benefit from seizing the opportunities that come with an influx of new potential tenants. Ultimately it is up to each individual landlord’s personal circumstances and preferences when deciding what is best for their situation.
Conclusion
In summary, the upcoming changes in Capital Gains Tax regulations are set to have a major impact on landlords. The way they manage their investment portfolios will need to be adapted to ensure they make the most of economic opportunities and don’t suffer from non-optimal tax payments. There is no definitive answer to what should be done, however being aware of the possibilities is paramount. For those departing from the market, buying at present prices may provide better returns than waiting for an uncertain future. Operating as close to tax liabilities as possible also means minimizing any potential unpaid gains with proper portfolio management. Ultimately, in this turbulent period it’s best to remain diligent and informed on all matters affecting landlord investment strategies.