Yahoo Finance Landlords sell up amid fears of capital gains tax hikes
Former rental properties have flooded the sales market as landlords escape the sector ahead of rumoured capital gains tax rises.
The percentage of homes for sale that were previously rented out has risen across all English regions, according to research by property website Zoopla. Currently 7.2pc of all new stock in Britain is a former rental property.
The increase has been particularly stark in London and the South East, where the proportion is 13pc and 8pc respectively – up from about 5pc a year ago.
Zoopla’s Gráinne Gilmore said: “Landlords are reassessing their portfolios in light of current rental trends, or ahead of possible tax changes for investment property. While the homes for sale account for a very small proportion – less than 1pc – of rented stock, it is a noticeable trend emerging.”
What are the mooted changes to CGT?
As previously reported by this newspaper, Chancellor Rishi Sunak is considering raising CGT rates to bring them in line with income tax. This would mean landlords could have to surrender a much larger chunk of their profits when they come to selling investment properties in the future.
A recent report from the Government’s own tax adviser, which the Chancellor commissioned himself, recommended upping the historically low rates of CGT so they were more in line with income tax and slashing the £12,300 annual allowance, among other proposals.
Upping rates in line with income taxes would raise £14bn a year for the Treasury, the Office of Tax Simplification calculated.
It would mean a higher-rate taxpayers paying double the amount they do today in many cases, or even more if combined with a reduction in the tax-free allowance.
Someone making a gain of £20,000 in the stock market today would pay £1,540 in CGT. But they would pay £3,080 if the rate went up to 40pc. They would pay £6,400 if a rate rise were combined with a reduction in the tax-free allowance to £4,000.
Someone making a gain of £100,000 would pay £24,300 more than they would today, under the same scenario.
A £100,000 gain from an investment property would be hit with a £38,400 bill – almost £14,000 than they would pay under the current system.
The proposed capital gains hike would cost the average landlord an extra £6,800 in tax when selling up, calculations by estate agency Hamptons have revealed. London landlords, who have typically seen the biggest gains, will see their tax bill rise the most – by £26,840.
Higher-rate taxpayers would be hit by a 40pc capital gains tax rather than the current 28pc on their gains. The analysis assumes landlords have not already used up their £12,300 annual tax-free allowance.
The impact on the market
A flood of new homes for sale could be damaging for Britain's property market, particularly when the stamp duty holiday comes to an end. The tax break has fuelled home moves and analysts expect there to be a drop in demand, and therefore prices too, when it finally ends.
However the market could be revitalised by the return of first-time buyers. Many of these were cut off from making purchases last year after banks tightened up lending restrictions during coronavirus. This led to the first drop in first-time buyer numbers since 2016.
However they are now on the rise with demand up 5pc in the first six weeks of 2021 compared to the final few months of last year. “Many of these buyers will be taking advantage of the increased number of home loans now available for purchasers with smaller deposits, and most will be less concerned about the ending of the stamp duty holiday,” Ms Gilmore added.
“First-time buyers have no property to sell, so their increased activity in the market is further pushing up buyer demand ahead of supply.”
Growth in demand is outstripping supply, pushing prices up. In the 12 months to January 2021 property values jumped by an average of 4.3pc, Zoopla said – the highest level of growth in nearly four years. The regions where demand is exceeding supply by the greatest margin are the North East and Wales.
“Despite the threat of a stamp duty deadline, there are no signs that fall throughs are gathering pace. Instead, they are currently running below levels seen over the last three years,” Zoopla said.
The return of first-time buyers to the market may also be down to increasing generosity from family members. In 2020 older homeowners released almost £755m of equity in their homes in order to help younger relatives, according to Key, a lifetime mortgage provider.
Gifting money for a house deposit was one of the most popular reasons for doing so and the so-called Bank of Grandma and Grandad contributed £42,500 to the purchase on average.
