Changes to capital gains tax (CGT) next spring will lead to a fall in property prices and force many buy-to-let owners to sell up, according to property market experts. Included in the government’s recent autumn statement were plans to cut the capital gains tax allowance from £12,300 to £6000 in April next year, followed by a further reduction to £3000 in April, 2024. CGT is payable on any increase in value accrued on a property that is not the owner’s principal residence, and there are fears that cutting the allowance could result in landlords selling off properties as they seek to avoid paying additional tax. Basic rate tax payers already pay 18% CGT on property sales, with those in the higher rate tax band liable to 28% CGT.
Buy to let landlords are already suffering from the recent jump in mortgage rates which has greatly increased their costs. This is at a time when inflation and the rising cost of living makes it difficult for them to pass on increased mortgage costs in the form of higher rents. As an example, a two-year fixed rate mortgage from Barclays would now be lent at a rate of 5.54%, up from a rate of 1.58% before the recent turmoil in the mortgage lending market. Thus a £200,000 interest-only mortgage that previously cost £263 per month in repayments would now jump to £923 on a 5.54% rate basis. With many landlords now unable to borrow funds to re-mortgage their properties it is feared that this could lead to a sell-off of property and a corresponding fall in prices as a glut of former buy-to-let homes hits the market.
Jamie Mathieson, property expert at London solicitors JMW said: “In an already challenging economic landscape for landlords, this huge cut to the annual CGT allowance could result in a fire sale of properties.” Jamie Lennox, from broker Dimora Mortgages added: “The cuts to the capital gains allowance threshold could be the final nail in the coffin for small buy-to-let owners.”
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