There have been some changes to the current Capital Gains Tax (CGT) allowance which have been announced by Chancellor Jeremy Hunt. The current CGT allowance of £12,300 is expected to be halved to £6,000 from April 2023. It will then be reduced to £3,000 from April 2024. As a result, this may lead to higher tax bills for property owners planning to sell in 2023. This blog will discuss CGT and how the changes may affect property owners. 

What is Capital Gains Tax? 

Capital Gains Tax is a tax on the profit upon the sale of (or ‘disposal of’) something (an ‘asset’) that is increased in value. An asset could be any of the following:  

• Personal possessions  
• A second home  
• Shares that are not within an ISA 

Anyone who is planning to sell a second home must pay Capital Gains Tax. 

Higher-rate taxpayers will pay 28% on any gains from residential property. Basic income taxpayers will pay 18% on residential property if it is within the basic income tax band (£37,700 for the 2021 to 2022 tax year) or 28% if it is higher.

How do the changes affect property owners?? 

A property owner who buys a property for £200,000 and sells it for £250,000 would make a ‘gain’ of £50,000. This means that the current taxable income for that property would be £37,700 (£50,000 minus £12,300 = £37,700) and £6,786 would be payable in CGT for a basic rate taxpayer. However, in the next tax year that taxable income for the same property would be £44,000 taking the CGT tax bill to £7,920. 

It is recommended that any property owners who are aiming to sell their property this year should sell their property quickly and complete the sale before the end of the current tax year at the end of March 2023.

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