Landlords seem to have been spared a potential 88% increase in Capital Gains Tax (CGT) liabilities, equivalent to more than £15,600 on the sale of an average property, following the Chancellor’s decision to reject calls for higher CGT rates at the upcoming Autumn Budget.
New analysis by The Letting Partnership, which examined UK house price growth over the last decade, reveals just how significant the financial implications of aligning CGT with income tax rates could have been for landlords, particularly those paying higher and additional rates of income tax.
While the Chancellor’s decision should provide some welcome reassurance to the buy-to-let sector, landlords continue to face considerable financial and regulatory pressures, with further changes already on the horizon.
Landlords to avoid potential £15,600 increase in CGT bills?
The analysis found that the average UK property was worth £198,169 in July 2016, rising to £272,611 by July 2026, an increase of £74,442 over the last decade.
Under current rules, a landlord paying the higher or additional rate of income tax would face an illustrative CGT liability of £17,866 on this gain, based on the current 24% rate and excluding any CGT allowances.
However, had CGT been aligned with income tax rates, the liability for a higher-rate taxpayer could have increased to £29,777 at 40%, an additional £11,911, equivalent to a 66.7% increase.
For additional-rate taxpayers, a move to 45% could have seen their CGT bill climb to £33,499, an increase of £15,633, or 87.5%.
Even basic-rate taxpayers could have faced an increase, with the liability on the same capital gain rising from £13,400 at 18% to £14,888 at 20%, an additional £1,488 or 11.1%.
The Chancellor’s rejection of higher CGT rates therefore should remove the immediate prospect of a substantial additional tax burden for landlords considering selling an investment property.
Landlords still face mounting financial pressures
Despite this welcome reprieve, the wider financial outlook for landlords remains challenging, with a number of existing and forthcoming changes continuing to place pressure on buy-to-let profitability.
Landlords are already preparing for changes to property income taxation from April 2027, when separate tax rates on rental income will increase by two percentage points, alongside the continued expansion of Making Tax Digital requirements.
These financial pressures also come against the backdrop of the Renters’ Rights Act, which introduced substantial changes to the private rented sector on 1st May this year, including the abolition of Section 21 no-fault evictions and the transition to periodic tenancies.
Further requirements are also on the horizon, including the rollout of the new national landlord registration system from December 2026, bringing additional responsibilities for landlords as they continue to adapt to the new regulatory landscape.
While the decision not to increase CGT will be welcomed across the sector, it does not remove wider concerns about the cumulative impact of taxation and regulation on landlord confidence, future investment and the supply of rental homes.
Chris Mason, Chief Operating Officer at The Letting Partnership, said: “The Chancellor’s decision not to pursue an increase in Capital Gains Tax will come as a welcome relief to landlords, particularly those who have seen the value of their investment properties increase substantially over the last decade.
Aligning CGT with income tax rates could have added more than £15,600 to the tax bill of an additional-rate taxpayer selling an average property. At a time when landlords are already facing considerable financial and regulatory pressures, avoiding such a significant increase is undoubtedly a positive outcome.
However, while this particular threat appears to have been taken off the table, the wider challenges facing the private rented sector remain. Landlords are still adjusting to the substantial changes introduced under the Renters’ Rights Act, with further regulatory requirements and tax changes yet to come.
The Government must recognise that it is the cumulative impact of these changes that risks undermining landlord confidence. While improving standards across the rental sector is important, so too is ensuring that property investment remains financially viable.
The decision to reject calls to raise CGT is a welcome step in the right direction, but landlords need more than the avoidance of further tax increases. They need a stable and supportive environment that gives them the confidence to remain in the sector and continue providing much-needed rental homes.”
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