Selling a second property? Changes to Capital Gain Tax might impact you

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Capital Gains Tax (CGT) has been in the spotlight recently due to changes in the tax-free allowances as well as updates to the rates of taxation of certain assets. Over the last couple of tax years, these changes have been drip-fed to individuals however, looking at where these allowances were two years ago, the changes are quite dramatic.

In the 2022/2023 tax year, the Capital Gains tax-free exemption was roughly in line with the tax-free personal allowance at £12,300. However, a year later, in 2023/2024, this allowance was more than halved to £6,000. In the current 2024/2025 tax year, this has been halved again to just £3,000 - a reduction of more than £9,000 in two years.

How does this impact your tax liability?

For a higher rate or additional rate taxpayer, the current tax rates for the disposal of assets are 24% on gains from residential property, and 20% on gains from other chargeable assets.

HMRC reduced the tax rate on residential property from 28% to 24% on 6 April 2024  and, although this isn’t a huge reduction, it does give some reprieve to the reduction in tax-free exemption, particularly where the gain is significant and may result in a lower tax charge than in 2022/2023 - when the threshold was higher – as the example below shows.

As there has been no change to the tax rate for other chargeable assets, the amount of CGT payable will increase in the 2024/2025 tax year.

Selling residential property

A higher or additional rate individual who sold a residential property, which was not their home, for a gain of £100,000 in 2022/2023, would have paid £1,276 more tax compared to someone disposing of residential property in 2024/2025, because of the falling tax rate

Tax year ended 5 April 2023		Tax year ended 5 April 2025
Gain	£100,000	Gain	£100,000
Less: Annual Exemption	£(12,300)	Less: Annual Exemption	£(3,000)
Net Gain	£87,700	Net Gain	£97,000
Taxed at 28%	£24,556	Taxed at 24%	£23,280

 

Increased reporting requirements

However, whilst there is a slight tax saving based on the above example, HMRC does have more stringent reporting requirements for the sale of residential properties with their 60-day reporting regime. For anyone disposing of a residential property the reduction in annual exemption to £3,000 will undoubtedly mean that more individuals are caught in the 60-day regime and will need to file and pay any tax due to HMRC within 60 days of sale completion. If an individual does not normally complete a self-assessment tax return, then any residential gains reported through the 60-day reporting regime will not trigger the need to register for self-assessment. On the other hand, for an individual disposing of other assets, there may be a requirement to report the gain via a self-assessment tax return.   

If you are unsure as to whether your disposal will mean you have an obligation to complete a 60-day CGT report, or if it should be included on a self-assessment tax return, it is advisable to discuss your circumstances with a qualified accountant to ensure that there are no undisclosed gains to HMRC; this could result in penalties being issued.

Finally, as with all disposals of chargeable assets, there are potentially a number of tax saving reliefs (Business Asset Disposal Relief (BADR), Principle Private Residence Relief, etc) that can be applied depending on the asset and/or your individual circumstances. For example,  currently, if a property qualifies as a furnished holiday let (FHL), you could claim CGT BADR on the sale which would reduce the rate of CGT from 24% to 10%.  However, on 6 April 2025 FHLs are due to be abolished which will increase the CGT on any sales after this date.

As always, it is best to check with a trusted accountant whether these are available to be claimed.