Selling up while CGT rates are down

23 May 2024

If you’ve ever bought or sold a property, you’ll likely be aware of the spring time property boom. Statistically speaking, house prices and the number of houses sold across the UK each spring tend to be greater than at any other time of the year. In fact, house prices have recently hit a record high in this month with the average sale recorded at £375,000 in the UK and a 6.7% average increase in Scotland to £192,000 over the past year.

With the potential to sell higher than ever before, it’s important that sellers know how this impacts your Capital Gains Tax (CGT) liability. And with recent changes to the CGT regime, here’s how you could sell higher and keep more this year.

What Triggers a CGT Charge?

CGT is charged on the profit (gain) you make when you sell a property that hasn’t been your main home. This can include buy-to-let properties, business premises and land. You may also be liable to pay CGT on anything you inherited in the past, including property.

This means that if you make any gain after selling a property, you will be liable to pay CGT on any excess above £3,000.

It’s important to note that there are some key differences in CGT between the disposal of property and any other assets and shares. Although there is a £3,000 CGT allowance, the level of your liability does depend on your total income and the asset in question.

For residential property the basic CGT rate is 18% with the higher rate recently lowered to 24%. However, for any other assets including shares you will pay 10% or 20% respectively. These liabilities are of course subject to any reliefs and/or losses that may be available.


What are the key changes to CGT?

In the highly anticipated Spring Budget, many business owners and individuals were expecting significant legislative changes to be announced in a bid to regain voter confidence ahead of the coming general election. Whilst some felt this year’s Spring Budget was somewhat vanilla, a significant proportion of property sellers will benefit from lower CGT costs going forward.

This year the CGT allowance (the total amount that any one person can gain tax-free) was halved from £6,000 to £3,000 and the overall CGT charge was lowered from 28% to 24%. Although property sellers are more exposed to CGT charges on the sale of their property, in many cases the lower tax rate more than makes up for this.


What do the Post April 6th changes mean for you?

The recent changes mean that while the annual exemption has been lowered (exposing more of your gain post-sale to CGT), the reduction in the tax rate could offset this. Let's break it down:

CGT exposure before April 6th

Before the CGT changes, property sellers who were liable at the higher rates of income tax have previously paid more tax when it comes to CGT. For example:

If you bought a property for £200,000 and sold it for £300,000 you would have a net gain of £100,000. The previous annual exemption was £6,000, but the CGT was also higher and therefore the taxable gain would be £94,000 which would have been taxed at 28% resulting in a final bill of £26,320.

CGT Exposure After April 6th

Things look different for property sellers after the Spring Budget. Using the same parameters, you can see that the new CGT rate has a significant effect on the overall tax bill:

If your original property price was £200,000 and you’re selling the same property for £100,000 more, this will be your net gain. The annual exemption for CGT halved this year to £3,000, meaning that more of your net gain is subject to tax (£97,000), this is taxed at only 24% resulting in a final CGT bill of £23,280.

So, the drop in taxation rate from 28% to 24% will have saved you £3,040.


Guiding you through the process

Navigating the complexities of CGT can be challenging, but understanding these changes can help you make informed and strategic personal tax decisions. If you're considering selling your property, a qualified tax advisor will be able to guide you, and ensure you fully understand your liability.

By staying informed about these changes, you can better navigate the property market and potentially save on your tax bill, leaving you will less to worry about when selling up.


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