Landlords have expressed relief following reports that the anticipated rise in Capital Gains Tax (CGT) will not apply to buy-to-let properties, alleviating fears of a potential mass sell-off that could have further strained the rental market.
Potential crisis averted in rental market
Speculation had been rife that the government might increase CGT rates in the upcoming Budget, potentially aligning them with income tax rates. Landlords were concerned that such changes would prompt many to offload their property portfolios to avoid higher taxes, leading to a surge in property sales and a short-term increase in housing supply.
Daniel Austin, CEO and co-founder at ASK Partners, commented: “Reports that the expected increase in Capital Gains Tax (CGT) will not include buy-to-let properties is welcome news. Had this been the case, we could have seen an even greater wave of private landlords selling off properties in response that may have offered a short-lived upside in property supply. While this could have temporarily levelled out property prices, the impact on the already strained rental market would have likely been far more severe.”
Implications for tenants and housing affordability
The rental sector is already grappling with a shortage of available properties, driving rents to record highs and exacerbating the affordability crisis for tenants. A mass sell-off by landlords could have reduced the number of rental homes even further, pushing rents higher and making it more difficult for those unable to buy their own homes.
“Those at the bottom of the housing ladder—who are unable to secure mortgages or afford deposits—would bear the brunt of these soaring costs,” Austin added.
For tenants like Sarah Williams, a nurse in London, the news brings a sigh of relief. “Finding affordable rent in the city is hard enough. If landlords started selling up en masse, it would have made things even worse for people like me who rely on renting,” she said.
Property debt strategies gain traction
With the CGT increase not affecting buy-to-let properties, landlords who were considering selling may now explore alternative investment opportunities within the real estate sector. Property debt strategies are emerging as a compelling option.
Austin explained: “From an investment standpoint, private landlords who have already decided to sell their property portfolios will have significant capital available for redeployment. Even those initially planning to reassign this capital may now be exploring alternative real estate investment opportunities. Property debt strategies, which have been continuing to gain traction, present a compelling alternative.”
These strategies allow investors to avoid CGT on interest received, as returns are taxed as income rather than capital gains. This provides an added layer of protection against potential future changes to CGT rules. “If CGT liabilities were to increase, more investors could turn to these flexible, income-based strategies, offering both financial efficiency and continued exposure to the real estate market,” Austin noted.
The road ahead
The exclusion of buy-to-let properties from the CGT hike offers a respite for landlords and could stabilise the rental market in the short term. However, with ongoing discussions about taxation and regulation in the property sector, landlords and investors need to stay vigilant.
For landlords, the situation underscores the importance of adaptive investment strategies and staying informed about legislative changes. As property debt strategies gain popularity, they may offer a viable path forward for those seeking to maintain or grow their exposure to the real estate market while navigating tax considerations.
