91探花

Whilst many are expecting increases to capital gains tax (CGT) rates to be announced in the October 2024 Budget, from HMRC suggests that the reduction in the rate of 28% to 24% from 6 April 2024 for residential property transactions may have helped to increase receipts. Despite the tax rate being lowered, CGT receipts in the period from 1 April 2024 to 31 August 2024 were £854m, up from £778m in the same period the year before. 

That may in part be a product of the property market warming up generally in light of the prospect of interest rate cuts and it could also point to some taking steps to sell up ahead of a potential hike in CGT in the Budget. It also forms part of a wider trend in recent years in the number of individuals paying tax at the top rate of CGT of 28% that previously applied to residential property and carried interest gains.

The gains from sales of residential property in the UK have seen significant changes over the past five years, driven by various economic factors and tax policies. According to data obtained from HMRC by 91探花 in a freedom of information request, between 2016/17 to 2022/23, the number of taxpayers liable for CGT at the higher rate of 28% rose from 50,000 to 120,000. The total CGT paid at the higher rate surged from £1.58bn in 2016/17 to over double that amount to £3.36bn in 2021/22. With the decline in property transactions generally, it has since fallen to £3.04bn in 2022/23. 

These figures do not solely relate to those selling residential property, as private equity executives also pay tax at 28% on carried interest. The figures provided by HMRC do not set out a breakdown but obtained from HMRC by the Resolution Foundation indicated that around 2,000 taxpayers paid tax at 28% on carried interest in the 2016/17 and 2017/18 tax years. The carried interest capital gains in 2017/18 was £2.07bn, meaning a maximum of £580m CGT receipts relating to carried interest in that year. So a small proportion of taxpayers account for a significant amount of these CGT receipts.

Several factors have contributed to this rise in CGT on residential property, such as the frozen tax bands and allowances that have not kept pace with inflation over the past few years, which dragged a significant number of individuals either into paying tax or paying it at higher rates. The phenomenon of stealth tax is well known in relation to income taxes but this data highlights it can be relevant to capital gains as well. 

The increase in mortgage costs and landlords’ inability to fully offset those against rental income, may have also encouraged some to dispose of their buy-to-lets given the higher interest rates in recent years. 

Mapping these trends against the number of property transactions recorded by the Land Registry reveals a comprehensive picture. The number of residential property transactions in the UK with a value above £40,000 has fluctuated, with a peak of , and a decline to around 1m in 2023/24. This volatility reflects broader economic conditions, including changes in interest rates, housing demand, and government policies affecting the property market.

The biggest influence on the sale of second properties may be yet to come. It will be interesting to note the levels of CGT receipts in the months ahead, as we lead up to the Budget and beyond, to see if there is a fire-sale of rental properties, which could help the chancellor out of a financial hole.