Buy-to-let 

Capital gains tax take rises as landlords feel the squeeze

Capital gains tax take rises as landlords feel the squeeze

There has been an increase in capital gains tax receipts in a sign that landlords are selling up as regulatory and tax changes start to bite in the buy-to-let market.

Latest figures from HM Revenue and Customs revealed there was an 18 per cent increase in capital gains tax receipts in 2018-19 compared to the previous year - with the amount raised reaching £9.2bn.

According to industry experts, this has been driven in part by private landlords ‘offloading’ less profitable buy-to-let properties as landlords’ margins narrow.

Unlike when a homeowner sells their house or flat, private landlords are charged capital gains tax on any profitable gains they make so an exodus of private landlords from the market could lead to increased revenue for the exchequer.

The trend is a sign that landlords have started to feel the effect of tax and regulatory changes on their income, as had been predicted by the Intermediary Mortgage Lenders Association in January.

Imla warned this year's tax return would be the first time many landlords would see the effects of the changes on their earnings.

Landlords have been subject to a number of regulatory changes in recent years, with an introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016 followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority's tightened underwriting rules.

Sean McCann, financial planner at NFU Mutual, said the double-digit hike in capital gains tax receipts could be attributable to this clampdown on private buy-to-let investors.

He said: “Capital gains tax is a growing source of revenue for the government. Last year’s record haul of £9.2bn already looks like it could be surpassed.

“The increase is partly due to some private landlords choosing to offload buy-to-let investments.”

Research from Arla Propertymark also showed the number of buy-to-let properties up for sale had increased by 25 per cent in April.

Mr McCann said: “Essentially, landlords are being squeezed from two sides by the taxman. From one side, the higher rate tax relief on mortgage interest is gradually being phased out, which makes it a much less profitable exercise.  

“From the other, those looking to sell buy-to-let properties are being squeezed with an extra 8 per cent capital gains tax.”

Mr McCann went on to say that HMRC “clearly saw the opportunity to increase the capital gains coffers” when it targeted landlords and was now introducing new rules to collect the revenue earlier. 

Currently, the tax is due by January 31 following the end of the tax year in which the sale has occurred but the government plans to change the rules from April 2020 to require tax to be paid within 30 days of the sale.

The government is also cracking down on overseas landlords avoiding tax and new research shows letters and campaigns have led to a 61 per cent increase in those admitting to not paying tax on their rental income.