What is capital gains tax?
Capital gains tax is a UK tax which is charged on the profit you make when you sell an asset that has increased in value since it came into your possession. You pay tax only on the amount by which the asset has gained in value, not the full amount of money you have made by selling it.
You are liable to pay tax on a number of different chargeable assets including property, although there is an annual tax-free allowance which currently sits at £12,300. For jointly owned assets, you can combine your tax-free allowances.
When it comes to property taxes, capital gains tax is generally only applicable on sales of second and buy-to-let homes, commercial premises and property which has been inherited. The amount that you pay is dependent on your tax status. If you are a basic rate taxpayer, you would pay 18% of the gain you make on a property after your tax-free allowance has been deducted. If you are a higher or additional rate taxpayer, you would pay 28%.
What changes have been made to capital gains tax?
In his recent Autumn Statement on 17 November 2022, Chancellor Jeremy Hunt announced that changes would be made to the capital gains tax free allowance rates as part of a number of measures to cut the £54 billion deficit in the UK’s finances. Other measures include a 50% reduction on the dividend allowance from £2,000 to £1,000 and freezing the income tax personal allowance and higher rate thresholds for an additional two years to April 2028.
The capital gains tax allowance threshold will be reduced by more than half from £12,300 to £6,000 as of 1 April 2023. The rate will then be cut by a further 50% to £3,000 from 1 April 2024.
This means that any gains over and above these amounts will be taxed accordingly depending on the individual’s tax status.
For properties which are jointly owned, by a married couple for instance, you can continue to combine your tax-free allowance which means a figure of £24,600 up to 31 March 2023, £12,000 from 1 April 2023 and £6,000 from 1 April 2024.
Should I try and sell my property before 31 March 2023 then?
If you are in the process of selling your property already, then there is certainly an advantage to getting the transaction done and dusted by 31 March 2023.
Since the summer of 2020, property prices have sky-rocketed by 24%. Assuming that the property you wish to sell originally cost or was valued at £234,073 (the national average property price in June 2020) and you have sold it for 24% (£56,177.52) more than it was worth when you bought or inherited it, then your capital gains tax payments would be as follows before and after 31 March 2023.
| Capital gains tax payment for a basic rate taxpayer paying 18%* | Capital gains tax payment for a higher or additional rate taxpayer paying 28%* | |
| Until 31 March 2023 | £7,897.95 | £12,285.71 |
| From 1 April 2023 | £9,032 | £14,049.71 |
| From 1 April 2024 | £9,571.95 | £14,889.71 |
*These figures are based on the assumption that there have been no other taxable gains within the year.
Whilst there is a saving to be made should you sell before 31 March 2023, if your property is not yet on the market and may take some time and refurbishment to prepare for sale then the benefit of rushing it through may not be worth the upheaval, particularly given the volatility of the housing market right now thanks to the looming recession and jump in mortgage and interest rates.
If you have a mortgage on the property, then depending on the timing of your sale in relation to when you took out the mortgage, you may also find yourself liable for early repayment fees which would eat into any savings made from a lower capital gains tax payment.
It also takes around 20 weeks to complete the sale of your home at the moment according to Rightmove, which means even if you have recently agreed the sale with a buyer you would still be very pushed to meet the 31 March 2023 deadline.
