Capital Gains Tax Rate Reduction on Residential Property Sales
Alex Gardner · March 6th 2024 · read
The taxable gain on the sale of a residential property in the 2023/24 tax year is subject to tax at 18% and/or 28% dependent of the taxable income of the individual. Following the Spring Budget announcement, from 6 April 2024, the higher tax rate on the sale of a residential property will reduce from 28% to 24%.
The higher rate of tax applies to taxable capital gains where a taxpayer’s taxable income exceeds the basic rate band limit.
The gain on the residential property, which is subject to tax, is calculated by deducting costs from proceeds, and reducing this gain by the annual exemption (2023/24 - £6,000, 2024/25 - £3,000).
The capital gains tax rates have remained unchanged since CGT rates were split between residential and non-residential gains in 2016/17, while in recent years the annual exemption has been reduced from £12,300 in 2022/23 to £3,000 in 2024/25, a reduction of over 75%.
A capital gain arises on the disposal, therefore, careful consideration as to whether the disposal should be delayed into the 2024/25 tax year to utilise the reduced higher rate percentage compared to the reduction of the annual exemption is required
Change in positions
Say, a higher-rate taxpayer is selling a residential property, and the taxable gain (before the annual exemption) is £100,000.
A sale of the property in 2023/24 would give a Capital Gains Tax liability of:
Gain - £100,000
Annual Exemption - £6,000
Net Taxable Gain - £94,000
CGT rate – 28%
CGT Liability - £26,320
A sale of the property in 2024/25 would give a Capital Gains Tax liability of:
Gain - £100,000
Annual Exemption - £3,000
Net Taxable Gain - £97,000
CGT rate – 24% CGT
Liability - £23,280 – A saving of £3,040
Reminder of the 60-day CGT reporting requirement
Where a property, that is situated in the UK, is sold, there is a legal requirement to submit a separate return for each disposal within 60 days of the completion of the transaction. This affects both direct disposals of UK property, and for non-UK residents only, indirect disposals of UK property. An indirect disposal is where at least 75% of the value of the company is derived from UK land.
Gains that relate to the following disposals are specifically excluded from the reporting regime:
- a no-gain / no-loss disposal ― this applies where assets are transferred between spouses or civil partners
- a grant of a lease for no premium to a person not connected with the grantor under a bargain made at arm’s length
- a disposal made by a charity, or
- a disposal of any pension scheme investments
Penalties are chargeable if the return is submitted late, and interest is charged where the tax payment is not made on time.
For UK residents only, a return is not required if no tax is due (e.g. where the disposal takes place at a loss or is fully covered by a tax relief, such as principal private residence relief).
Where a property, that is situated in the UK, is sold, there is a legal requirement to submit a separate return for each disposal within 60 days of the completion of the transaction.
For further guidance
For further guidance on any of the tax measures discussed in this article, please contact your usual MHA advisor or Contact Us.
Read the latest Spring Budget commentary from MHA – visit our dedicated hub where we will be providing resources, advice, and practical guidance on what any new tax measures could mean for you and your business, to help you prepare for and manage their impact.
