Capital Gains Tax Raid - Why Landlords Are Rushing to Sell

Landlords and property investors are moving quickly to sell their properties amid growing concerns over a potential increase in Capital Gains Tax (CGT) in the upcoming Budget.

This urgency is driven by the belief that tax hikes could take effect immediately after the announcement, possibly as early as midnight on 30th October.

In response, some buy-to-let investors are opting for swift sales at lower prices to ensure they can complete transactions before any potential tax increase.

Why the Rush?

The Labour Party’s pledge to avoid increases in income tax, VAT, or National Insurance has fuelled speculation that the Chancellor might look to CGT for additional revenue.

With CGT commonly viewed as a tax on the wealthiest, many property investors are concerned that they may be targeted as part of efforts to plug holes in public finances.

This has led to a surge in the number of rental properties on the market, with Rightmove reporting a record high in the share of properties for sale, largely driven by fears of CGT hikes.

Understanding CGT

Capital Gains Tax is applied to profits made from the sale of property (other than your primary residence), businesses, shares, and most personal assets with gains exceeding ￡6,000.

Individuals currently benefit from a ￡3,000 annual tax-free allowance, although this has been eroded in recent years and could be subject to further change.

At present, basic-rate taxpayers pay 10% CGT on most assets and 18% on residential property gains.

Higher-rate taxpayers face a 20% rate on most assets and 24% on property, previously 28%.

Investors fear that these rates could rise substantially, possibly bringing them in line with income tax rates.

Investors Share Their Concerns

Paul Greenwood, a landlord with 26 rental properties in Leeds, is among those racing to sell before the Budget.

He recently placed eight properties on the market, selling two at ￡110,000 each, contingent on contracts being exchanged before the Budget announcement.

Greenwood fears a significant increase in his CGT bill if rates rise.

Similarly, Paul Connors, a landlord from Worcestershire, has placed his two-bedroom buy-to-let flat in Devon up for sale, dropping the price in an effort to secure a quick sale.

Connors and his wife, facing the end of a fixed-rate mortgage deal, have decided to sell now, with CGT fears tipping the balance.

A Mid-Year Tax Change?

Typically, tax changes take effect from the start of the new tax year. However, there is precedent for mid-year CGT increases.

For instance, in 2010, then-Chancellor George Osborne raised the rate for higher-rate taxpayers from 18% to 28%, effective from midnight on the day of the Budget.

Such sudden changes are designed to prevent investors from rushing to sell before a rate increase takes effect, ensuring the government maximises revenue.

Given the current political and fiscal climate, a similar mid-year CGT rate rise could be on the cards.

Potential CGT Hikes

Reports suggest that Chancellor Rachel Reeves is considering aligning CGT rates with income tax, which could mean investors paying up to 45% on gains.

This aligns with recent statements by Prime Minister Keir Starmer, who warned that those with the "broadest shoulders" would bear the brunt of the upcoming tax changes.

In light of this, financial advisors are seeing a surge in clients looking to crystallise gains by selling assets before any tax increase.

What’s Next?

The looming threat of a CGT hike has created a flurry of activity in the property market, with landlords seeking to sell quickly to avoid paying significantly more in tax.

With speculation running high, it remains to be seen how the Budget will unfold, but investors are taking no chances.

If CGT rises do come into effect immediately after the Budget, those who act swiftly may avoid a hefty tax bill.

For landlords and property investors, the next few weeks could prove crucial in determining their financial future.