Landlords face £15,000 Capital Gains Tax hike under Labour

Rumoured changes to Capital Gains Tax (CGT) in the upcoming Autumn Budget could see the average landlord being hit by a £15,000 CGT increase on the average buy to let property, research reveals.

Lettings and estate agent Benham and Reeves have analysed the CGT being paid by landlords at current tax thresholds and what would happen should thresholds match income tax.

With the average landlord remaining in the BTL sector for around a decade, those considering an exit today would have seen the value of their investment increase by £105,054 per property.

This equates to a profit – or gain – of £96,651 per property after accounting for buying costs such as stamp duty, selling costs such as estate agent fees, as well as the legal fees.

Landlords have been targeted

Marc von Grundherr, a director of Benham and Reeves, said: “Buy to let landlords have been targeted by a number of laws and legislative changes over recent years, all designed to reduce the profitability and tempt more landlords to quit the sector, thus, in theory, freeing up more stock for owner-occupier homebuyers.

“Whilst these changes have certainly caused some landlords to call time on their investment, it’s perhaps a tad over-enthusiastic to describe this trend as a mass exodus, and many landlords continue to see buy to let investment as an extremely worthwhile endeavour, with many more pivoting to limited company status in order to streamline their tax affairs.”

He adds: “However, our new Labour government has made it very clear which side of the fence they wish to sit, first with the introduction of the Renters’ Rights Bill, with it looking likely that further tax hikes are on the way in the Autumn Statement.”

Pay CGT of £16,857

The amount of gain differs by region, with the research showing that landlords in the East of England, London and the South East seeing the largest profits.

As a result, the average landlord across England exiting today would pay CGT to the tune of £16,857 per property at the basic income tax rate of 18% or £22,476 at the higher rate of 24%.

However, the Labour government is widely expected to announce changes to capital gains legislation in the upcoming Autumn Budget to match current income tax rules.

Landlords in the higher rate of tax

This would mean that landlords who fall into the higher rate of tax would be facing a CGT bill of 40% – 16% higher than the current tax threshold.

For higher rate taxpayers looking to exit, they would be hit with a CGT bill of £37,460 – £14,984 more than they would currently pay.

The increase for those at the basic rate is more marginal at £1,873.

However, with growing numbers of landlords using limited companies to manage their BTL portfolios, they would only pay corporation tax at 19% for companies with profits below £50,00 versus the 24% CGT rate for individual higher-rate taxpayers.

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