Last year the government suspended plans to reform capital gains tax, but industry experts warn the threat of a future rise could impact the private rental sector.
In December last year, the Treasury ignored previous suggestions from the Tax Simplification Office (OTS) to reduce capital gains tax rates to the same level as income tax, as well as to reduce the allowance.
While this meant that many who would face CGT in the near future could breathe a sigh of relief, including property investors, the threat of a future rise remains very much present. Tim Stovold, a partner at accounting firm Moore Kingston Smith, called it a “stay of execution”, saying rates could rise in a new parliament.
But Jonathan Samuels, chief executive of Octane Capital, is one of many property industry players to warn that the lingering threat of higher rates could deter people from the private rental sector; and the buy-to-let market is calling for more landlords as tenant demand grows.
Capital gains tax hike could dampen investment
Samuels says government policy and tax changes in recent years have been an effort to curb investment in the private rental sector. This includes things like tax relief reductions, stamp duty and tenant fee changes.
“The pandemic has also proven to be problematic for some landlords who have suffered long empty periods due to factors such as tenant eviction bans and reduced rental demand in our major cities, in particular,” he said.
“Despite all of this, the sector has held firm and continues to provide the vital backbone of the rental market on which so many depend.”
He adds that many homeowners have also benefited from a significant level of capital appreciation in their properties as house prices have risen over the years. The value of the buy-to-let sector has increased “substantially”.
How much is a buy-to-let worth in the UK?
Research by Octane Capital found that the UK buy-to-let sector is now worth around £1.7 billion, taking into account the total value of the property stock. This figure has increased by nearly £240 billion over the past five years, the company says.
This means that there are around 5.5 million private rental homes in the UK, with London accounting for around 19% of this number with over a million properties.
With so many people relying on buy-to-let for housing, the sector is hugely important and should therefore be supported rather than penalised, many say. There can be a lot of stigma attached to being a “landlord” and a recent survey even showed that 73% feel they are being unfairly portrayed as “the financial bogeyman of this generation”.
Gavin Richardson, managing director of Mortgages for Business, which conducted the survey, said: “What if we take landlords out of the housing equation? The impact on the real estate market would be significant and almost entirely negative.
“It’s not like the government is pumping money into social housing – or making progress in housing construction.
“Frankly, the government should stand up for landlords and praise their contribution to the housing sector – landlords are bailing out the government!”
Current Capital Gains Tax Rules
Currently, the first £12,300 of capital gains each year is exempt from tax. Above this amount, basic rate taxpayers pay 10% tax, and higher and additional rate taxpayers pay 20%. For residential properties, base rate taxpayers pay 18%, while higher rate taxpayers pay 28%.
For more information on rates, allowances and more, visit the government website.