These changes mean that property owners planning to sell in 2023 may face a higher tax bill. So, what can be done to avoid this situation?
Capital Gains Tax (CGT) is a tax on the profit made from the sale or disposal of assets that have increased in value. This includes personal possessions, second homes, and shares that are not held within an ISA. Therefore, individuals who own or plan to sell a second home will be subject to CGT.
The rate of CGT varies based on the taxpayer's income level. Higher-rate taxpayers will pay 28% on gains from residential property, while basic-rate taxpayers will face either 18% or 28%, depending on the size of the gain and whether it falls within the basic income tax band.
It is important to note that the rules differ for trustees and businesses; full details can be found on the UK Government website.
Let's consider an example where a property was purchased for £200,000 and sold for £250,000, resulting in a gain of £50,000. Based on the old figures, the taxable income for that property would be £37,700 (£50,000 minus £12,300), with a CGT tax bill of £6,786 for a basic-rate taxpayer.
However, in the next tax year, the taxable income for the same property would be £44,000, increasing the CGT tax bill to £7,920.
One effective method for achieving a swift sale is through auction. While traditional open market sales can take up to six months with the risk of fall-throughs, auctions offer a secure and efficient process.
Sellers who choose to auction their properties receive a legally binding contract as soon as the hammer falls, with a fixed completion date set just 30 days later. This means that sellers who opt for an auction in February can hand over the keys and have the proceeds in their account before the end of the tax year.
Auctions are not limited to rundown or distressed properties. All types of properties, including vacant or tenanted residential properties, development land, mixed-use units, and commercial opportunities, can be successfully sold through auctions.