The rate of capital gains tax to be paid on property by higher-rate taxpayers is to be cut by four percentage points, today's Spring Budget revealed.
Those looking to sell a property that is not their main home will likely pay less in tax in 2024-25.
Other measures affecting investors were also announced, including the introduction of a new Isa and plans to sell NatWest shares to the public.
Here, Which? takes a look at the changes and how they might affect you and your money.
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Higher rate of capital gains tax on property cut
The Chancellor announced a cut in the rate of capital gains tax (CGT) from 28% to 24% on profits from selling property.
This is for higher-rate taxpayers – or basic-rate taxpayers whose gains push them over tax thresholds (see below).
The rate of CGT on other assets and tax bands will remain the same.
The change in rate would mean that the sale of a second home by a higher rate tax-payer that grew £40,000 in value since it was bought would incur a CGT bill of £8,880 instead of £10,360 – a reduction of £1,480 in the tax bill.
| Tax band | 2023-24 property | 2024-25 property | 2023-24 other assets | 2024-25 other assets |
|---|---|---|---|---|
| Basic rate | 18% | 18% | 10% | 10% |
| Higher rate | 28% | 24% | 20% | 20% |
Capital gains tax allowances still falling
As planned since autumn 2022, the annual tax-free allowance on capital gains will be halved in April, down to £3,000 for an individual, and £6,000 for a couple.
Investors will be liable to pay capital gains tax (CGT) on investments if they make a profit – or a capital gain – when they sell their assets. This could be property or a large stake in a fund, though these will be taxed differently (see below).
Most people do not need to worry about paying capital gains tax as it does not apply to the sale of your main home.
Married couples and civil partners can transfer assets to each other without incurring CGT and, in doing so, effectively double their annual allowance.
You can also deduct costs in a sale, such as estate agent fees and stamp duty, from the amount of gain liable for tax.
Capital Gains Tax explained
Why you could be a 'higher-rate taxpayer' for capital gains tax purposes
Usually, you have to earn more than £50,270 a year to be classed as a higher-rate taxpayer.
However, even if you’re normally a basic-rate taxpayer, your capital gains could take you into the higher-rate band.
Let’s say you’ve earned an income of £40,000 in this tax year. You’ve also sold some property, which generated a taxable gain of £20,000 after you deduct your CGT allowance.
The first £10,270 of your gain – the amount that takes you up to the £50,270 higher-rate tax threshold – will be taxed at the lower rate of 18%. The remaining £9,730 is taxed at the higher rate (28% today, dropping to 24% in April).
- Find out more:Capital gains tax on property
British Isa launched
The Chancellor announced a new 'British Isa', sometimes referred to as a 'UK Isa', which will give investors an additional tax-free allowance of £5,000 to invest exclusively in UK shares.
It will be on top of, and have the same benefits as, the existing £20,000 annual Isa allowance.
It is not yet clear which investment platforms will offer a British Isa, and the government says it will consult on the new allowance, so it's unclear exactly when it'll be made available.
The Chancellor said the British Isa aimed 'to ensure British savers can benefit from the growth of the most promising British industries’.
Investing solely in the UK carries risks as well as opportunities.
The FTSE 100 – which effectively tracks the 100 largest publicly listed companies in the UK – grew by 8% in the last five years. In comparison, the S&P 500 – which essentially tracks the 500 largest publicly listed companies in the US – grew 85% in the last five years.
The British Isa will be most useful to those who have already used the rest of their Isa allowance, though most people do not max out this allowance each year.
Michael Summergill, chief executive at AJ Bell, said: '50% of the money our customers currently invest through their stocks and shares Isas is invested into UK assets, so this new allowance will have no impact whatsoever on their investment behaviour. For most people, the British Isa only adds an unwelcome complexity.'
Dividend tax allowance and Isa flexibility
Alongside the halving of the capital gains tax-free allowance, the tax-free allowance for dividends is falling – from £1,000 a year to £500.
This had been announced back in 2022 and will take effect in April this year.
The move makes Isas even more important to investors, as dividends paid by investments within Isas are tax-free.
Other changes in how you can use Isas will also come into effect in April, having been announced in last year's Autumn Statement. These include paying into multiple of the same type of Isa in each tax year, as well as partial transfers of Isa funds.
- Find out more:What is a stocks and shares Isa?
The Chancellor updated on plans announced in last year's Autumn Statement to sell the last of the government's shares in banking group NatWest.
The move aims to emulate the 'Tell Sid' campaign of the 1980s, which encouraged the public to buy shares in the recently privatised British Gas.
The earliest this sale would take place is this summer, and the government intends to fully exit its shareholding by 2025-26 – though it reserves the right to delay if the sales do not represent value for money.
- Find out more: Investing directly in shares
