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How much will landlords save in capital gains tax?

If a landlord bought a property 15 years ago for £150,000 and they are now selling it for £250,000, they’d have made a gain of £100,000.

From April 6, when the lower annual allowance kicks in, the taxable gain will be £97,000, if they haven’t already breached their allowance by other means.

A higher-rate taxpayer, prior to the announcement in the Budget, would have faced a CGT bill of £27,160.

But with the tax rate dropping from 28pc to 24pc, they will pay £23,280 – a tax saving of £3,880.

Property gains vs asset gains

The rate of CGT you pay on second home sales is not to be confused with the rate charged on other assets, such as shares and valuable items. 

A basic-rate taxpayer pays 10pc capital gains tax on assets, while a higher-rate taxpayer pays 20pc. These rates are not changing.

You will only need to pay tax if the gain – the difference between how much you sell and bought the investment or property for – is larger than the tax-free allowance (currently £6,000, but lowering to £3,000 from April 6).

Tax cut will ‘boost property market’

The Government believes that the 4pc drop in CGT for higher-rate property sellers will boost sales.

A report released with the Budget reads: “This will encourage landlords and second home-owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time, while also raising revenue over the forecast period. 

“Private Residence Relief will remain in place, meaning the vast majority of residential property disposals will pay no CGT.”

Tomer Aboody, director of property lender MT Finance, warned that “persuading more landlords to sell up could be detrimental to the number of available rental properties, leading to higher rents for tenants”.

Landlords have already fled the market after being hit by higher costs and increased red tape in recent years. They previously benefited from an annual allowance of £12,300 before CGT kicked in, but following two years of significant cuts as part of a multi-billion pound tax grab, it will stand at just £3,000 from next month.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The capital gains tax cut on property will provide a small boost for property investors, but it still remains one of the least tax-efficient ways to invest.”

How will my capital gains tax bill be calculated?

To work out your potential liability, you need to compare the amount you initially paid for the property with the amount you are likely to get when you sell it. 

The cost of any improvements made to the property while you owned it, such as a new bathroom or conservatory, should be added to your initial outgoings, as should stamp duty and legal fees. 

You can deduct expenses like solicitor’s fees from the selling price – use the amount of money which you actually end up receiving.

It’s also possible to offset losses from previous tax years, or from the sale of other properties, from your overall gain.

The gain you’re left with is the difference between your costs and losses, and what you get when you sell. This will then be taxed in proportion to the period of time when the property was no longer your main residence, minus the final 18-month tax-free period.

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