After much speculation and pressure to increase Capital Gains Tax (CGT) rates in recent budget announcements, the Chancellor has today announced the surprise decision to reduce the top rate of CGT on residential property to 24%.
The current CGT rate for residential properties is 18% for any gains falling within the basic rate band, and 28% for gains in excess of this level.
The announcement therefore represents a 4% reduction in the top rate of CGT for residential property, which will take effect from 6 April 2024 (though the 28% rate still remains and applies in respect of carried interest).
It may be worth noting that the relevant date for CGT on residential property sales is the date that contracts are exchanged on the property. The above reduction will therefore only apply to properties that exchange on or after 6 April 2024, and not properties that exchange before this time but complete afterwards.
The lower rate of CGT for residential properties remains unchanged at 18%, as does the rates for non-residential properties at 10% for gains within the basic rate band and 20% above this level.
The Chancellor had previously resisted pressure to increase the CGT rates in favour of reducing the annual exemption instead. This reduced the amount of capital gains permitted before CGT becomes payable, which was £12,300 in 2022/23, to £6,000 for 2023/24 and reducing further to £3,000 for 2024/25.
Whilst the reduced allowances will result in more gains coming into the scope of tax, today’s announcement may soften the amount of CGT payable on residential property gains.
With the property market slowing in recent times, it is therefore hoped that the reduction in CGT will stimulate the property market and encourage the sale of second homes, buy-to-let and other residential properties that may be sitting on capital gains and not benefitting from full main residence exemptions.
Contact Us
If you have any questions on how this announcement will affect you, please don’t hesitate to contact Richard Hanley or a dedicated member of our Tax team.
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