Potential shifts in the forthcoming Autumn Budget could deliver a significant blow to landlords, potentially resulting in an additional £15,000 Capital Gains Tax (CGT) burden on the average buy-to-let (BTL) property. This alarming projection comes from research conducted by Benham and Reeves.

Benham and Reeves explored how landlords are currently impacted by CGT under existing tax thresholds, then compared this to what could happen if these thresholds are adjusted to mirror Income Tax, a change that has been suggested as part of a possible tax equalization process.

Typically, landlords remain invested in the buy-to-let sector for around 10 years. Those considering selling up now would likely see the value of their property rise by a staggering £105,054 over the period. After factoring in various costs—such as Stamp Duty, estate agent fees, and legal costs on both purchase and sale—the net profit per property lands at £96,651.

The research highlights that landlords in regions like the East of England, London, and the South East have reaped the largest gains, with profits surpassing £100,000 per property in the past decade.

Currently, a landlord looking to exit would face a CGT bill of approximately £16,857 at the basic tax rate of 18%, or a heftier £22,476 at the higher 24% rate.

However, it's widely speculated that the upcoming Autumn Budget, slated for October 30th, will bring substantial changes to CGT, as the Labour Government seeks new revenue streams to bolster public services. This could mean CGT thresholds being aligned with income tax, a shift that would leave higher-rate taxpayers staring at a 40% CGT bill—an eye-watering 16% hike from current rates.

If these proposals take effect, higher-rate taxpayers selling their properties could see their CGT liability soar to £37,460, an increase of £14,984 from what they would currently owe. For those at the basic rate, the rise would be more moderate, about £1,873.

With CGT changes on the horizon, it’s no wonder many landlords are already restructuring their portfolios, moving their properties into limited companies to shield themselves from higher taxes. CGT applies only to properties owned by individuals, and by transitioning to a corporate structure, landlords pay just 19% in Corporation Tax—considerably lower than the current 24% CGT rate for higher earners.

If the CGT rate does jump to 40%, we could see even more landlords taking this route, significantly altering the landscape of property investment.

Marc von Grundherr, director at Benham and Reeves, commented: “Buy-to-let landlords have been targeted by a number of laws and legislative changes over recent years, all designed to reduce the profitability and tempt more landlords to quit the sector, thus, in theory, freeing up more stock for owner-occupier homebuyers.

“Whilst these changes have certainly caused some landlords to call time on their investment, it’s perhaps a tad over enthusiastic to describe this trend as a mass exodus, and many landlords continue to see buy-to-let investment as an extremely worthwhile endeavour, with many more pivoting to limited company status in order to streamline their tax affairs.

“However, our new Labour Government has made it very clear which side of the fence they wish to sit, first with the introduction of the Right to Rent bill, with it looking likely that further tax hikes are on the way in the Autumn Statement.

“It remains to be seen just what these tax changes will entail but any further attack on landlords is only likely to see private rental stock levels reduce further, exacerbating the rental crisis in the process and driving rents ever higher at the expense of tenants.”

As changes loom, the buy-to-let sector faces growing uncertainty. The upcoming budget could very well reshape the market, forcing landlords to rethink their strategies, potentially amplifying the challenges already facing the UK’s rental market.