Capital Gains Tax  

CGT hike could 'freeze rental market'

CGT hike could 'freeze rental market'
Credit: Hollie Adams/Bloomberg

A landlord association is warning that a capital gains tax (CGT) hike would “freeze” the rental market.

The National Residential Landlords Association (NRLA) has warned any proposals to increase CGT would make the rental housing market “far less responsive” to tenants’ changing needs, such as the increased interest in living outside of cities.

This is because it would stop landlords from selling and reinvesting in these areas.

The association highlighted its research from 2019, which found that 72 per cent of private landlords said CGT was a “major disincentive” to selling property.

A spokesperson for the NRLA said: “Higher CGT rates will deter landlords from selling properties and reinvesting in areas where demand from tenants is highest. Lower rates encourage landlords to sell and reinvest.

"This is especially important given data suggesting that renters are looking away from cities and towards towns and suburbs for properties in response to the trend towards homeworking during the pandemic.

"Major maintenance work tends also to be undertaken upon the sale of properties before tenants move in, another reason why ensuring churn in the market is of such importance."

Chris Sykes, associate director and mortgage consultant at Private Finance, agreed a CGT hike would discourage existing landlords from selling their properties, adding that it could also put off new buy-to-let investors from entering the market.

Sykes continued: “It is somewhat down to an individual investors opinion of the market, as some will invest in properties with a mentality of just wanting to profit from the rental income with any capital gains being nice to have if they do happen, while others are more interested in investing in areas specifically for capital appreciation reasons.”

The NRLA is recommending a CGT exemption or reduction where landlords sell properties to sitting tenants.

Last month The Telegraph reported that the chancellor was considering an increase in CGT to bring it into line with the higher levels of income tax rates.

This was after he commissioned a review of CGT in July in relation to individuals and smaller businesses, asking the Office of Tax Simplification (OTS) to consider the overall scope of the tax and the rates which apply.

According to the OTS’ report, the disparity in rates between CGT and income tax can “distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains”.

The maximum capital gains tax rate is 28 per cent, compared to 45 per cent for income tax.

Ben Beadle, chief executive of the NRLA, said: “Increasing capital gains tax would reduce churn in the rental market undermining the flexibility it has always been good at providing.

“A tax hike would be a kick in the teeth for all those who have invested in property to provide security for the future for themselves and their families.”