As part of his 2022 Autumn statement, Chancellor Jeremy Hunt announced a reduction in the Annual exempt amount on Capital Gains Tax (CGT).

From 6 April 2023, the current £12,300 exemption will be reduced to £6,000, before a further reduction to £3,000 from 6 April 2024. This exemption is set against all the taxpayers’ gains in the tax year. If it is unused, it cannot be carried forward and is lost.

CGT is a tax payable on any profit made through the sale of an asset that has increased in value. Known as ‘chargeable assets’, these can include:

• most personal possessions worth £6,000 or more, apart from cars
• property that’s not your principal private residence home
• any residential or commercial property that is not covered by the principal private residence exemption
• any shares, unit trusts and other investment that are not in an ISA or PEP
• business assets

Gifts to a charity are usually exempt from CGT, as are assets gifted to your husband, wife or civil partner unless you separated and did not live together at all in that tax year.

How does this affect landlords?

For landlords who hold property personally rather than through a company, the reduced allowance will result in a higher amount of CGT being owed when a property they have let out has been sold.

A higher rate taxpayer pays 28% on any gains from residential property and a basic tax rate payer pays 18%. 

Example: If a rental property originally purchased for £200,000 was sold for £250,000 during the 2022/23 tax year, the first £12,300 of the £50,000 gain would be covered by the exemption, assuming the taxpayer did not have any other gains in the tax year, and not subject to CGT. The remaining £37,700 profit would incur £6,786 in CGT for basic rate taxpayers and £10,556 for a higher rate taxpayer.

The reduced allowance applicable from 1 April 2023 will see this example CGT bill increase to £7,920 for basic rate taxpayers and £12,320 for higher rate taxpayers. The following year, CGT on the sale of a £250,000 rental property would total £8,460 for those paying basic rate taxes, rising to £13,160 for higher rate taxpayers.

Note that when a property is held in joint names both parties can use their annual exempt amount to reduce the gain.  

How do these changes affect limited company landlords?

The change to CGT shouldn’t impact limited company landlords, but changes to Corporation Tax will. Landlords who hold their property in a limited company will pay Corporation Tax if the sale of a property results in a profit, rather than CGT.

The Corporation Tax rate currently stands at 19% but is set to change in April 2023. As from the 1 April 2023, the Corporation Tax rate will increase from 19% to 25% for companies with taxable profits of £250,000 or more. Companies with taxable profits at or below £50,000 will still be taxed at 19%, known as the small profit rate.

For companies with profits between these two amounts a system of marginal relief applies.

However, where the same group of people control more than one company these limits may be reduced. For example, if an individual owns two companies and there is a commercial connection between them, each company will pay tax at 25% of its taxable profits exceed £125,000

For full tax advice, landlords should seek the advice of their accountant or professional advisor.