The Ripple Effect: How Upcoming Tax Adjustments Could Reshape the Property Market
In the evolving landscape of property investment, April marks a significant turning point for landlords due to upcoming changes in Capital Gains Tax (CGT) regulations.
This shift is expected to have a profound impact on the financial calculus for landlords contemplating the sale of their properties. With a reduction in the CGT allowance and alterations in tax rates, the government aims to invigorate the housing market.
Impending Tax Changes for Landlords
Starting April, landlords are poised to face significant changes in the taxation landscape, with a notable reduction in the Capital Gains Tax (CGT) allowance from £12,300 to £6,000.
This adjustment is part of a broader fiscal strategy but has sparked concerns among property investors about increased tax burdens upon selling their properties.
Despite the Chancellor's effort to soften the blow through a reduction in CGT rates from 28% to 24%, the consensus within the real estate sector suggests these changes may not be as beneficial as intended, particularly for landlords.
Impact Analysis
Research illuminates the challenges ahead. A staggering 89% of landlords paying at a higher tax rate, alongside all landlords on a lower tax rate, are expected to encounter higher CGT bills come April.
Some experts underscore the paradox of the intended policy effect; while aimed at stimulating housing supply by prompting landlords to sell, the actual outcome could deter them due to the less favourable tax treatment, especially for those who have entered the market more recently or own properties in less affluent areas.
The anticipated impact of these tax changes varies significantly based on the length of property ownership.
For landlords who have owned their properties for shorter periods, the tax increase is more pronounced, reflecting the broader trend of taxation policies disproportionately affecting those with smaller gains or lower-value properties.
Conversely, long-term landlords stand to benefit from the reduced tax rates due to larger accumulated gains over time.
The Stealth Tax Effect
Labelled as a 'stealth tax', the revised CGT regulations will particularly affect landlords with capital gains below £68,000. This group predominantly includes newer landlords and those with properties in less expensive regions, who are likely to find the tax changes counterproductive to their financial interests.
Beveridge reiterates the unintended consequences of these changes, emphasizing the disconnect between policy intentions and real-world outcomes for landlords and the housing market at large.
Market Dynamics
The evolving tax environment has led to a noticeable shift towards the incorporation of property investments. With a record number of limited buy-to-let companies established in 2023, it's clear that many landlords are seeking refuge in corporate structures to mitigate individual tax liabilities.
This trend highlights a growing preference for the perceived stability and tax efficiency offered by company ownership, amid fluctuating policies for individual landlords.
| Average CGT bill before April 2022 | Average CGT bill from April 2024 | Change (%) | Alteration (£) | |
| London | £24,327 | £23,084 | -5% | -£1,243 |
| South East | £14,748 | £14,873 | 1% | £125 |
| South West | £12,324 | £12,796 | 4% | £471 |
| East | £14,014 | £14,244 | 2% | £230 |
| East Midlands | £10,139 | £10,923 | 8% | £784 |
| West Midlands | £10,400 | £11,146 | 7% | £746 |
| North East | £7,928 | £9,027 | 14% | £1,099 |
| North West | £9,844 | £10,670 | 8% | £826 |
| Yorkshire & Humber | £9,578 | £10,441 | 9% | £864 |
| Wales | £10,024 | £10,824 | 8% | £800 |
1newhomes table
The impact of CGT adjustments also reveals significant regional disparities, with landlords in less expensive markets bearing the brunt of the tax increases. This scenario underlines the complexities of the housing market and challenges the effectiveness of the Chancellor's strategies in promoting property sales and increasing housing availability for first-time buyers.
Rental Market Trends
Despite the tax turbulence for landlords, the rental market continues to show signs of cooling growth. February saw a slowdown in rental price increases, although the rates remain above inflation, placing additional financial pressure on tenants.
This cooling trend is juxtaposed with a rental market that is gradually stabilizing, thanks to a slight increase in the availability of rental properties and more balanced dynamics between landlords and tenants.
