CGT changes - what they mean for you
The change will bring many more people into the scope of having to pay tax on profits made on investments held outside of ISAs or pension vehicles. The rate you pay will depend on factors such as your income tax bracket and whether the gains being realised are from property or other assets.
The full impact will vary depending on your individual circumstances, so it is important to get appropriate advice to ensure you can take the right action.
At times like these, financial advice can prove a valuable investment.
How is CGT changing?
The allowance for capital gains before tax is applied is reducing from £12,300 to £6,000, with effect from 6 April 2023. It will reduce further to just £3,000 from 6 April 2024.
The measure, introduced by Jeremy Hunt in his first budgetary statement as chancellor in November 2022, is expected to raise approximately £1.2 billion in tax revenue.
To understand the impact of the change, we must first look at how capital gains tax is calculated. The ‘gain’ in straightforward terms is the difference between the price you paid for the asset and how much you sold it for, less any allowable losses. The tax you pay is based on this figure.
For non-property assets, basic rate taxpayers will be subject to a 10% capital gains tax, rising to 20% for higher rate taxpayers. If you are selling property, the rates are 18% and 28%, respectively.
In practice, this means that if you sell a second or additional property before 6 April 2023 and make a profit of £25,000, the first £12,300 would be tax free. You would then be taxed on the remaining £12,700 at 18% if you are a basic rate taxpayer and 28% if you are a higher or additional rate taxpayer.
In this example, as a higher rate taxpayer you would pay £3,556 in CGT, or 28% of the remaining profit.
From 6 April 2023, the tax-free allowance will reduce to £6,000, meaning you will be taxed on any gain above that level. In our example above, this would mean your tax on the £25,000 profit from the property would rise to £5,320.
From 6 April 2024, when the CGT allowance falls again to £3,000, the tax you’d pay on a £25,000 profit would rise again to £6,160.
How much CGT you would pay on a £25,000 profit
|CGT allowance||Non-property assets||Property assets|
|Basic rate (10%)||Basic rate (18%)||Basic rate (18%)||Higher rate (28%)|
|Before 6 April 2023||£12,300||£1,270||£2,540||£2,286||£3,556|
|After 6 April 2023||£6,000||£1,900||£3,800||£3,420||£5,320|
|After 6 April 2024||£3,000||£2,200||£4,400||£3,960||£6,160|
For illustrative purposes only. Individual circumstances may vary.
The changing buy-to-let landscape?
The CGT change is expected to have a significant impact on landlords and the buy-to-let sector – and we are already seeing this, with a rise in property owners seeking to crystallise gains from their assets before the allowance is reduced.
It is just the latest in a series of tax changes affecting the buy-to-let sector over the past few years.
- 2016: New rules tightened the tax relief granted to landlords making replacements and repairs in rental properties. In addition Stamp Duty Land Tax rates increased by 3% for buy to let properties.
- 2020: Landlords are no longer able to offset mortgage expenses against rental income to lower their overall tax charge. Instead, they can claim less-generous tax credits, which have been phased in since 2017.
- 2020: Private residence relief – which allows landlords to reduce CGT if they live in the property themselves for a period – was cut from a maximum of 18 months to nine months
- 2022: Thresholds for stamp duty land tax (SDLT) were raised temporarily in September 2022 in an effort to boost the housing market, but will come to an end on 31 March 2025. Landlords in England and Northern Ireland must pay SDLT of between 3% and 15% depending on the property value which includes the additional 3% tax.
This is on top of tighter controls on rents, which have affected the income landlords can recognise from their buy-to-let properties. Some properties have been subject to the issues on cladding and from April 2025 there are minimum energy efficiency standards that apply.
A perfect storm
As interest rates have risen since the summer of 2022, this combination of factors has created a perfect storm in some areas of the buy-to-let market.
In many cases, landlords looking to sell may find their net return has been reduced significantly by higher taxes, lower thresholds, and higher mortgage payments.
While this may sound like bad news all round, property owners can reduce the impact of these changes through good preparation and seeking appropriate advice. Speak to an adviser to ensure you’re paying the right taxes, and not paying anything you don’t have to.
If you have buy-to-let properties, you need to look at your net return situation. Similarly, if you have other investments that are likely to be caught within the capital gains net, now is the time to plan ahead.
If you’re looking to buy
If you’re a cash buyer looking to expand your property portfolio, you may be able to find opportunities in the buy-to-let market to acquire assets at a slight discount.
If you are considering investing in buy-to-let property, it is important to explore the best way in which to do this. Getting appropriate advice is key here, as a well-informed adviser will be able to help you assess your specific circumstances and choose the most appropriate way forward.
Outside of property, if you are looking to invest you may want to consider alternative options for how to deploy capital that is not subject to CGT. Make sure you’ve made maximum use of your ISA allowance and your pension contributions.
Recent changes to the annual and lifetime allowances for pensions could make this an attractive path for some investments. Make sure you take advice first so you can align any action to your circumstances.
What can I do to mitigate the changes?
You can hold investments in a number of different ways to mitigate the effects of capital gains tax.
Make full use of the allowance while you can. Before 6 April 2023, if you are able to move quickly, you may want to sell to crystallise any gains from assets that have performed well.
Similarly, in the 12 months leading up to the 6 April 2024, make sure you make the best of the £6,000 allowance before it falls to £3,000.
We have seen a significant increase in the number of people seeking to sell properties to crystallise gains and ensure they are not subject to the reduced allowance.
You should not rush any decision to sell. Seek out advice to ensure selling is the best option for you and your investment portfolio.
The value of advice
Capital gains tax is not a straightforward matter. It can affect different investors in different ways, and will apply in various ways to different areas of a portfolio.
With so many changes coming and a variety of external factors such as interest rates affecting property portfolios, it is vital that you seek out quality advice before making decisions.
Our experienced advisory teams can help you get a full picture of your investments and recognise where and when taxes will fall due. From here, we can work with you to make your portfolio more tax efficient and help you make the most of your allowances.
Together, we can make sure your investments are resilient for the long term to help you achieve your objectives.
Partner and Head of Advice, Mercer Private Wealth UK