Capital Gains Tax – Budget Day looms

You have no doubt heard that the new Government are set to announce their first Budget on 30 October 2024. Whilst the Government have confirmed their pledge not to increase income tax, VAT, or National Insurance, the current deficit means changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) are likely.

Here we take a further look at the plans for CGT. With rising property prices, affordability challenges, and a national housing shortage, any changes to CGT can have significant implications for homeowners, investors, and the wider housing market.

CGT is calculated on the uplift in value of assets and is charged on the disposal or sale of an asset. Currently CGT is not charged on an individual’s primary residence. Properties with land may differ from this tax-free exemption, it is always worth taking tax advice before making a sale decision.  For homeowners selling second homes or rental properties, CGT is applied on the gain, less allowable deductions, and costs.

Currently, the CGT allowance is £3,000 per individual per year. This tax-free amount has reduced significantly in the preceding years.

CGT is currently charged at 10% for the basic rate and 20% the higher rate, with increased rates of 18% and 24% respectively for residential property disposals. It is speculated that the Government might equalise the rates of CGT with income tax, meaning we may see the rates changed to 20%, 40%, or 45% depending on the level of your income. The Government may also look to reduce the tax-free threshold further from the current rate.

The Autumn Budget and potential reforms to Capital Gains Tax could have a significant effect on the UK housing market. Whilst the goal is to generate additional revenue, there are risks of reducing investment in the property sector. For both homeowners and investors, understanding the implications of any CGT change is crucial for navigating the ever-changing housing market.

Investors and prospective homeowners should keep a close eye on the announcements. What we don’t know is when the changes will be introduced, this may be from the start of the next tax year or, as has happened before, the changes may be introduced on Budget Day.