Despite a recent capital gains tax (CGT) rate reduction, many buy-to-let landlords are facing a higher CGT bill compared to just two years ago. While the top CGT rate dropped to 24%, the annual tax-free allowance has significantly decreased, from £12,300 to £3,000, making the rate-cut not as attractive as it first appears.
Basic-rate taxpayers won't benefit from the CGT rate reduction, as their tax rate remains unchanged at 18% alongside the huge reduction in the tax-free allowance.
Higher/additional rate paying landlords with gains below £68,000 will still pay more due to the reduced tax-free allowance. Only high earners with significant capital gains (over £68,000) will see a tax benefit.
For those who sold before the CGT rate change, a risky strategy exists to potentially benefit from the lower rate. They could consider deferring the gain by investing in an Enterprise Investment Scheme (EIS). However, be aware of these risks:
• EIS Investment Risk: You might lose part or all of your investment.
• Future CGT Rate Changes: The CGT rate could increase before you sell your EIS investment, negating or reducing the initial benefit.
Always obtain regulated tax and investment advice before investing in such a scheme, as the potential benefits and pitfalls are different for every individual. Contact us today if you would like tax advice.
