Capital Gains Tax change to dampen transactions and prices

The upcoming change to the tax-free allowance for Capital Gains Allowance is expected to dampen down the property market, leading to fewer transactions and potentially lower prices – with landlords and investors taking a more conservative approach to their investments.

That’s according to bridging broker Finbri, which polled landlords on the subject, finding that 45% of landlords are concerned (23%) or strongly concerned (22%) about Capital Gains Tax allowance.

The tax-free allowance for Capital Gains Tax was cut from £12,300 to £6,000 in April and will drop further to £3,000 in 2024 – cutting into the profits made from properties from house price growth.

The lender said: “The recent introduction of the new CGT rate in April, along with the previous restriction on mortgage interest relief and the increased stamp duty rates, will have a major impact on the profitability of landlords and investors when they sell their properties.

“The private rental market plays a crucial role in the UK’s housing sector by providing people who cannot purchase properties with a place to live and landlords with an income source. However, with rising rates, landlords are facing a great deal of strain, which may push more of them to exit the market.”

Nearly half of landlords (44%) have indicated that they will sell off their properties in response to the financial strain, combined with the impact of the stamp duty surcharge and the upcoming Renters Reform Bill.

Figures from HM Revenue and Customs illustrate that Capital Gains Tax receipts have risen by £3bn in the last year, whereas stamp duty has only increased by £1bn due to the sharp decline in the housing market.

Despite landlords’ concerns regarding the tax, there is optimism, as 45% said they believe now is a good time to invest in the property market, and the same proportion thinks they will invest in 2023 – as some are clearly looking to take advantage of a quieter property market to get a good deal.

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