2023 Tax Changes for Property Investors and Developers

These changes could affect your income or how you operate in 2024 and beyond, so it’s important to understand them now!

From cost-of-living rises potentially impacting development costs to Capital Gains Tax exemption amounts, here’s a summary of everything you should know about your finances this year. 

 

Capital Gains Tax changes

The Capital Gains Tax (CGT) exemption allowance more than halved in 2023, sitting at £6,000 for the 2023/24 tax year. This figure decreased from £12,300 in the 2022/23 tax year. 

The exempt amount means individuals currently do not pay CGT on the first £6,000 of profit on the sale of taxable assets. 

In the 2024/25 tax year, this figure will be halved again, down to £3,000 from the 6th of April 2024. That means individual landlords or property investors are currently being charged CGT on an additional £6,300 compared to 2022, rising to £9,300 in 2024. 

CGT is charged at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. However, this rises to 18% and 28% respectively if you sell residential property – something that could seriously affect your profitability.

If you jointly own a property with your spouse or civil partner, you will still be able to combine your annual exemption. However, this will result in an even larger reduction in profitability, with your combined exemption reducing from £24,600 in the 22/23 tax year to £6,000 in 24/25.

It may be worth taking advantage of the higher CGT exempt amount this financial year before we see a further reduction in April. 

Always seek professional advice to get the most from your CGT exempt amounts or find alternative ways of maximising profits. 

 

Deadlines for property sales

Another change made to property sales in 2023 is the new six-month deadline on non-conditional contracts. Tax is calculated on property sales when the contracts are exchanged, not the final sale, and this process can last several months for property investors, so some investors would exchange contracts to “lock in” current tax rates and wait several months before the final sale. 

Under the new rules, if the date of sale is more than six months after the contract exchange, taxes will be charged at current rates rather than at the date of exchange. 

There is also a 60-day reporting deadline for property sales after the date of the final sale for CGT, too. This means any delays in the reporting of your property sales could lead to penalties and interest being imposed. 

 

Stamp Duty Land Tax for Property Developers

When purchasing land or property, Stamp Duty Land Tax (SDLT) is payable on an increasing scale based on the overall value of the property. 

For investors or developers, this could be a key consideration in calculating potential profit margins and may be the deciding factor in whether to go ahead with a project or not. 

In February 2023, the nil-rate band (NRB), which is the threshold under which SDLT is not payable, increased to £250,000. This is good news for property developers who may be purchasing an older property that requires a lot of work, as the value could be reduced to a point where that additional payment has been removed. 

The property value bands above this figure have remained the same, and are as follows:

• £0 – 250,00 = 0%
• £250,001 – £925,000 = 5%
• £925,001 – £1,500,000 = 10% 
• More than £1,500,000 = 12%

It is important to consider that an additional 3% surcharge is payable on any residential property worth more than £40,000 if you already own a home. This will simply be added to the existing charge for the value of that property. 

If you hold your property investments through a company, be aware that the sale or transfer of an existing property could trigger an SDLT charge. 

Seek the advice of a professional to ensure that you can avoid this unnecessary tax bill. 

 

Corporation Tax rises

In April 2023, the Corporation Tax rates were raised from 19% to 25% for companies with profits of more than £250,000. Companies earning £50,000 or less were able to keep the lower rate of 19%. 

Companies with profits of between £50,001 and £250,000 are now taxed at 25% but qualify for marginal relief, which allows them to taper their tax expenditure on a sliding scale. 

 

The purpose of your development changes

Property developers occasionally find themselves with assets that, for some reason, struggle to sell. In situations like this, you may choose to change the purpose of your new homes from sale to rental properties, allowing you to earn some money while you wait for a more opportune time to sell. 

If you do this, your houses could be considered fixed assets rather than stock, which may trigger a tax charge due to how these taxes are calculated. Additionally, there’s a chance that you may no longer qualify for certain reliefs as a property developer as you could now be considered a landlord by law. 

The intention of your development is key here, but to avoid any tax complications and disqualifying yourself from relief, seek the professional advice of a tax specialist. 

 

Cost of living rises

With the cost of living continually on the rise, starting new projects or delays in existing projects can be a more expensive prospect. An increase in material costs and hiring subcontractors can take away significant amounts of profitability, and continual rises could get in the way of your business. 

 

Get in touch with Edwards Accountants today

All these factors demonstrate exactly why it is essential that you work with a financial professional when navigating property development or working as a landlord. As expert tax advisors, our team will ensure you are saving as much as possible when it comes to your tax obligations.

No matter whether you need personal, corporate, or international tax help, our team have the knowledge you need to navigate it.

Get in touch with our team today to find out what we could do for you!