The Chancellor may have averted a mass sell-off in the rental market by not altering capital gains tax on the sale of buy-to-let properties and second homes.
Ahead of today's announcement, speculation had been rife that the government would align CGT with income tax rates, causing concern that such changes would prompt many landlords to offload their property portfolios to avoid higher taxes, leading to a surge in property sales as well as a short-term increase in housing supply.
With the supply of rental homes continuing to fall far behind demand, the predicted exodus by landlords could have further reduced the number of available rental homes, driving rents even higher and making it more difficult for those unable to buy their own homes.
However, following today's announcement of increasing the lower rate for capital gains tax from 10% to 18%, with higher rate going from 20% to 24%, landlords who were considering selling may now remain in the sector and explore alternative investment opportunities.
Richard Donnell, Head of Research and Insight at property website Zoopla comments:
"It’s positive to see that capital gains tax has not increased for landlords (already 24 per cent for higher rate taxpayers). The private rented sector has seen static supply since tax changes introduced in 2016 and there is a steady net selling by landlords in response to tax policy but also greater regulation of housing and higher mortgage rates.
"We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.”
Adam Jennings, head of lettings at estate agency Chestertons, says: “With no changes to Capital Gains Tax, we expect fewer landlords deciding to sell their property. Despite this, demand for rental properties continues to outstrip supply which means asking rents are unlikely to see a downward adjustment.”
Steve Griffiths, chief commercial officer at The Mortgage Lender comments: “With strong demand for rental properties the need for a healthy private rental sector, and the professional landlords that facilitate this, is clear. We cannot keep asking landlords to bear the brunt of increased taxation, particularly at a time when there is a shortage of affordable homes available to buy and significant affordability challenges for first time buyers.
“It is likely that we’ll see some landlords re-evaluate any additions to their portfolios in light of the 2% increase to 5% on higher rates stamp duty for additional properties, effective immediately, with some smaller landlords weighing up whether it makes commercial sense to continue to operate.
“Not everyone is ready to, or wants to buy a home. The private rental sector provides flexibility and security to millions across the country. If we want to encourage professional landlords that provide quality, energy efficient rental properties, we cannot afford to be punitive.”
