(Bloomberg) -- Almost all British landlords selling homes from April will end up paying more tax on their profits despite a cut to the capital gains levy announced by Chancellor Jeremy Hunt this month. 

That’s because the tax reduction in Hunt’s Spring Budget pledge won’t benefit sellers when an annual personal tax-free allowance has also been shrinking at the same time, according to a report from broker Hamptons International. Some 89% of sellers belonging to a higher tax-rate group will see their capital gains tax bill rise from 2022 levels, along with all lower-rate payers, the report said.

“The chancellor made it clear he was hoping to encourage landlords to sell up and add new housing supply into the market,” said Aneisha Beveridge, head of research at Hamptons. However, “most landlords leaving the market this year will end up paying more tax than two years ago, not less,” she added.

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Hunt this month pledged to reduce the higher rate of CGT to 24% from 28% on residential sales in a bid to encourage some landlords to sell and free up stock. But over a year ago, the chancellor more than halved the tax exempt allowance for CGT to £6,000 ($7,640) starting April 2023 and pledged to cut it to £3,000 for the new fiscal year beginning April 6.

Homeowners in the UK generally do not pay capital gains on their main residence, so the changes will mainly affect private landlords and second homeowners. Given that the average landlord who sold a home last year reported a gross gain of £110,000, it means almost all investors will pay more tax if they sell — and it will hit newer landlords and those selling in cheaper markets the hardest, Hamptons warned.

UK landlords are under pressure from higher mortgage rates and tougher regulation, prompting many to sell. The number of buy-to-let mortgages falling into arrears more than doubled annually in the final quarter of 2023, and cooling demand for rental homes has reduced the pace of rent increases.

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To be sure, buy-to-let investors choosing to run their homes through a limited company are not liable to pay CGT. A record number of buy-to-let firms were established in the UK last year as landlords sought to cut costs by shifting rentals into a corporate structure.

What’s more, landlords selling homes in London are set to be the winners from the CGT changes. Most buy-to-let investors in the capital will see average bills fall by 5% if they’re a higher-rate taxpayer, as well-established landlords who have accumulated bigger gains are more likely to benefit from the tax cut.

The changes “will hit landlords making the smallest gains hardest,” Hamptons’ Beveridge warned. “The reality is, that the capital gains tax changes taken as a whole will likely act as a disincentive,” she added.

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