With the Autumn Budget set for 30th October, speculation is growing about a potential increase in Capital Gains Tax (CGT). Landlords still looking to exit the market are being warned that time may be running out to sell their properties before the tax hike comes into effect, as research shows a record number of former rental properties are now listed. This is particularly evident in London, where nearly a third of properties listed for sale were previously rental homes.
Landlords reconsider portfolios ahead of budget
Duncan Kreeger, CEO of TAB, spoke to SellHouseFast.co.uk about the implications of the anticipated CGT rise. He explained that many landlords are rushing to sell their properties in response to the looming tax changes.
“It’s certainly true that whispers of a potential capital gains tax hike have landlords reconsidering their portfolios,” Kreeger said. “The idea of increased taxes on gains could severely cut into their profits, prompting many to cash in before the potential increase. Nearly 20% of homes on the market, having previously been rentals, suggests we’re seeing the start of a notable trend.”
With such a significant number of properties on the market, it appears that landlords are attempting to sell before they face the potential burden of higher taxes. However, the big question remains: what happens if they can’t sell in time?
Potential consequences for landlords unable to sell
Kreeger highlighted the difficult decisions landlords may face if they are unable to sell before the expected tax rise: “If landlords can’t sell before the capital gains tax increase, they’ll face a difficult choice. They may have to hold onto the property longer and endure higher taxes on their eventual gains. Alternatively, some may choose to rent their properties out longer-term, hoping that the rental income compensates for the tax hit.”
For landlords who are unable to sell in time, this could result in reduced profits or even the need to lower asking prices to attract buyers. The timing of the tax increase remains uncertain, and landlords are anxiously waiting to see when it might be implemented.
When might the tax increase take effect?
Although the specifics of the CGT hike are still unknown, Kreeger suggests that the announcement could come soon: “It’s plausible that we’ll see it announced in the Autumn Budget, but the implementation might not be immediate. There could be a grace period before the changes come into force, giving landlords a few months to offload properties if they’re quick about it.”
He added that while there might be some warning, landlords shouldn’t count on a long window to act: “If history is any indicator, the Treasury might give some warning – but I wouldn’t bet on a long window. For landlords, time is of the essence.”
Positive impacts on the property market
While the potential CGT rise may be concerning for landlords, it could present an opportunity for other buyers. Kreeger believes that first-time buyers could benefit the most: “First-time buyers could be the biggest winners here. With more properties hitting the market, particularly in high-demand areas like London, competition eases, and prices could adjust accordingly.”
As landlords offload properties, it may create more opportunities for private buyers who have been priced out of the market. This shift could also lead to more diverse homeownership, with fewer properties locked into rental portfolios.
Who stands to benefit most?
Kreeger predicts that younger buyers and owner-occupiers are in the best position to benefit from this reshuffling of the property market. “Without a doubt, first-time buyers and owner-occupiers stand to gain the most. With landlords unloading properties, it could lower the barriers that have kept younger generations out of the market, especially in London.”
Institutional buyers, such as property funds or Build-to-Rent investors, could also take advantage of the situation, potentially acquiring properties at more competitive prices. If landlords rush to sell, those ready to buy could find themselves in a strong position to negotiate.
Will the trend spread beyond London?
While London is currently leading the way, Kreeger expects this trend to ripple across the UK. “London may be the key player now, but don’t be surprised if we see this ripple across the country. The capital tends to set the tone, and if the market there reacts strongly, other regions will follow.”
Cities like Manchester, Birmingham, and Bristol, where rental yields have been strong, may also see landlords selling properties to avoid future tax hikes. However, much will depend on local market conditions and how quickly the potential budget changes unfold.
As the Autumn Budget approaches, landlords are facing time-sensitive decisions with the possibility of a capital gains tax increase on the horizon. However, the timing of these changes remains uncertain, and landlords must act quickly to avoid being caught by rising taxes.
