An new era of ‘landlord prisoners’ will emerge if the mooted rise in capital gains tax (CGT) goes ahead in the Autumn Budget, experts have warned.
The tax is widely expected to be increased by the Chancellor in the Autumn Budget on 30 October.
Ben Perks, managing director of Orchard Financial Advisers, explained: “Many are familiar with the term ‘mortgage prisoners’, which are borrowers that are trapped in mortgages and have no option to sell or remortgage.
“An increase to CGT could see the creation of so-called ‘landlord prisoners’.
“These are landlords who are being hammered from every angle as the Government try [to] make it as unattractive as possible to own multiple properties. Now they are going to make it unattractive to offload them.”
CGT rates
CGT is levied on profits made from the sale of assets, such as a buy-to-let (BTL) investment or second home.
There is currently a £3,000 tax-free allowance on capital gains, after which there is an 18% CGT applied on residential property sales for basic-rate taxpayers and 24% for those in the higher-rate tax band.
The Treasury is understood to have drawn up plans to align capital gains rates with income tax.
The straw that breaks the camel’s back?
Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, said: “As the Autumn Budget looms, a palpable sense of unease is spreading through the UK’s buy-to-let sector, with the prospect of a significant rise in CGT leaving many landlords contemplating a swift exit from the property market.
“What was once a beacon of opportunity for investors has devolved into a labyrinth of fiscal challenges and bureaucratic hurdles.
“For many landlords, this potential CGT rise is seen as the culmination of a series of regulatory and financial challenges that have beset the sector in recent years.
“With the phasing-out of mortgage interest tax relief, more stringent energy-efficiency requirements, and tighter regulations on tenant evictions, a CGT rise could be the straw that breaks the camel’s back.
“Furthermore, against a backdrop of already dwindling rental supply, the implications of a mass exodus, estimated at nearly a third of landlords, could be devastating for the rental market.”
Properties for sale previously on rental market
Earlier this week, Rightmove said almost one in five (18%) properties currently for sale were previously on the rental market.
This is up from 14% a year earlier and 8% in 2010.
Reduction in rental supply
Clive Reed, the owner of Goldmanread, said: “We have seen a marked decline in investors entering the buy-to-let market over the last few years.
“There is very little financial justification left to recommend buy to let as an investment.
“The mooted increase in CGT makes this one more nail in the coffin of the buy-to-let sector.”
He continued: “Some landlords I have spoken to are trying to exit before the expected tax changes come into effect.
“Ironically, even equity-rich investors who would otherwise be happy to sell and return a property to the market are actually being disincentivised given the likely tax hit.
“The reality of this move will be to reduce the supply of buy-to-let property, thereby driving up rental costs.
“Small landlords are likely to be driven out of the sector, while limited company purchases and larger corporates are likely to dominate over the coming years.”
