Property investors and buy-to-let landlords could still face higher capital gains tax bills following this month’s Budget, despite reports that the Chancellor has ruled out a major increase.
John Healey will not bring capital gains tax (CGT) into line with income tax, according to the Financial Times, which cited four sources familiar with the plans. However, a smaller increase remains on the table ahead of the 28 October Budget.
The uncertainty leaves landlords and second-home owners facing a potential rise in the tax payable when they sell investment properties.
Smaller CGT increase remains a possibility
Capital gains tax on residential property currently stands at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Aligning CGT with income tax could have resulted in substantially higher bills for property investors.
Higher-rate taxpayers currently pay 40% income tax, compared with 24% CGT on taxable residential property gains. The reported decision rules out that level of increase, but does not eliminate the prospect of higher rates.
For landlords considering selling, even a modest rise could affect the financial return from disposing of a rental property. It could also influence the timing of sales, particularly among investors with substantial capital gains.
Could higher taxes discourage landlords from selling?
The Chancellor faces pressure to raise billions of pounds to meet government spending commitments and higher borrowing costs. Prime Minister Andy Burnham’s plans for increased defence spending and expanded social care have added to the pressure on public finances.
However, Labour’s manifesto commitments have restricted the Treasury’s options for raising revenue. The government has pledged not to increase the main rates of income tax, VAT, corporation tax or National Insurance.
Capital gains tax raised £24bn in the 2025/26 tax year, according to figures cited in the report. Economists have warned that higher CGT rates could discourage investors from selling assets.
Some property owners may decide to retain their investments rather than trigger a larger tax liability. For estate agents, this could mean fewer buy-to-let properties coming onto the market, although the impact would depend on the scale of any increase. Others may seek to complete sales before new rates take effect, potentially creating a short-term change in activity.
Budget uncertainty continues
The reported decision not to align CGT with income tax removes one of the more significant tax threats facing property investors. However, landlords and second-home owners are not necessarily in the clear.
With a smaller increase still possible, the sector faces another period of uncertainty ahead of the Chancellor’s Budget announcement. The final tax position will become clearer on 28 October.
