Finance Insights

How has the Budget impacted the buy-to-let market?

buy-to-let finance

In November’s Autumn Statement, the Treasury announced drastic changes to the tax-free allowance for capital gains tax, (the tax paid when landlords sell a property).

From 5 April this year, the allowance will more than halve from £12,300 to £6,000 – and it will then halve again, to just £3,000, in April 2024.

Essentially, this means landlords will have to pay more tax on any profits they make. Couple this with rising interest rates and fewer buy-to-let properties on the market and it makes for a bleak picture. 

So, how has this impacted the market? And what is the best finance route for landlords now?

What do the changes mean for landlords?

The changes to the CGT annual exempt amount (AEA) come at the tail end of a challenging period for landlords, with increased regulation, additional Stamp Duty Land Tax (SDLT) and a reduction in income tax relief on mortgage interest all contributing to a particularly unattractive buy-to-let market. 

These factors have already pushed a number of landlords to exit, and many more are looking to sell their properties before the changes wipe out even more of their profits. 

For example, let’s say you’re a higher rate taxpayer with a buy-to-let property that has increased in value from £200,000 to £300,000 in the decade since you bought it. If you sell now, your gain will be £100,000, minus AEA of £12,300, leaving you with a chargeable gain of £87,700. That means you’ll pay £24,556 (28%) in CGT. However, if you wait until April, your AEA will leave you with a chargeable gain of £94,000, so you’ll pay £26,320, a £1,764 difference. 

Should I exit or enter the buy-to-let market?

So, if you own a buy-to-let property, should you sell now or later? Despite the upcoming CGT changes, the answer to that question isn’t as clear as it first appears. 

Firstly, if you’re only just starting the selling process now, the sale may not complete until after 5 April, meaning you won’t benefit from the higher AEA anyway. Additionally, while house prices are currently reported to be declining, in a few years, market growth could increase the value of your property to a level that will outweigh the AEA reductions you can offset against gains. What’s more, if you increase rents in the future, your increased income will offset rising CGT. 

Should I enter the buy-to-let market?

What about if you’re a first-time property investor? Well, as with any business, the key thing is to be aware of the taxes and regulations you’ll be subjected to so that you can budget and maximise returns while staying on the right side of HMRC. 

As well as CGT, which currently stands at 18% for basic-rate taxpayers and 28% for higher rate taxpayers, you’ll be charged SDLT and income tax. 

In England and Northern Ireland, you pay SDLT at an additional 3% on each tier on purchases over £40,000 (Scotland and Wales have different taxes). Income tax on any rental income you receive after expenses is charged at your marginal rate, with mortgage interest only deductible against profits at the basic rate of 20%.

The benefits of buy-to-let 

Whether you’re a first-time landlord or you already own an extensive portfolio, there are still many good reasons to enter the rental market, including:

  • Capital gain – property prices can go down, but the overall trend tends to be up so you stand to make a profit when you sell
  • Additional Income – owning a rental property is a great way to generate income from rent yields
  • High demand – rental demand is currently very strong due to a lack of affordable housing and stricter mortgage underwriting 
  • Spread your investments – whatever assets you have in your investment portfolio, purchasing property is a great way to spread your risk
  • Flexibility – recent tax changes have given rise to more buy-to-let limited companies and lenders are responding with a diversity of mortgage products, giving you loads of flexibility in how you build your portfolio 


Need funding?

A buy-to-let mortgage can help you finance your asset. Finpoint is a free platform that can help you get a better deal on your mortgage.

We give you access to the UK’s largest panel of lenders. You can apply anonymously, compare providers, and choose the best option for your needs without pressure. 

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