Give tax breaks to landlords who sell to long-term tenants, says think tank

8 October 2018
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The government is being urged to give landlords in England a tax break if they sell their rental properties to long-term tenants.

Under the proposals drawn up by Conservative think tank Onward, existing buy-to-let properties would be eligible for 100% capital gains tax relief if the property is sold to a tenant who has lived there for three years or more.

The gain would then be split evenly between the landlord and the tenant, who could use the windfall to help towards their mortgage deposit.

The average gain per property would be £15,000, so a first-time buyer could typical expect to gain £7,500 towards their deposit. With higher property prices in the capital, Londoners could receive as much as £19,500 under the scheme.

Onward estimates that 88,000 households could benefit from the proposals each year - nearly half a million over five years. 

The estimated saving for taxpayers would be £1.32 billion per year in lost income to the Treasury. 

Will Tanner, director of Onward, comments: "Rising prices and the growth of buy to let means that too many people, especially younger generations, are stuck on a treadmill of rising rents and insecure tenancies with no viable route to get on the housing ladder.  

"Today's renters are older, more likely to be in rented property for longer, and more likely to have children than any generation before them. 

"It is time for ministers to give private renters the chance to make their house a home, just as a Conservative government gave a previous generation of council tenants the Right to Buy their home years ago.”

Onward is wrong to call for landlords to disinvest from property

David Smith, policy director for the Residential Landlords Association (RLA) partly welcomes the proposals from Onward, but has reservations: “We welcome Onward’s acceptance of the need for more positive taxation in the rented sector which the RLA has long argued for. Indeed, last year, we suggested using capital gains tax reliefs in a similar way to that being proposed today.

“Since then, a report by academics at Cambridge University for the RLA has argued that it is not clear whether a reduction in the rates at which capital gains tax is applied would incentivise landlords to sell their properties to sitting tenants.

"A more suitable approach would be a tax relief on rental income for the provision of longer tenancies, with a refund on the stamp duty levy for additional properties where a landlord is prepared to sell a property to a sitting tenant.”

Mr Smith adds: “Where Onward is wrong is in its call for landlords to disinvest from the sector. With the demand for private rented homes showing no signs of abating, and the Institute for Fiscal Studies (IFS) today warning of the difficulties many young people have affording a home of their own, to choke off the supply of rental homes would leave many young people stranded and continuing to rely on the home of mum and dad for a place to live."

 “The Chancellor should use his budget to scrap the stamp duty levy on additional properties where landlords are prepared to invest in property, adding to the net supply of homes. This could include bringing empty homes back into use, new-build properties or converting larger properties into smaller, more affordable units. To tax new housing supply, given the current housing crisis we face, is simply ludicrous.” 

Young people with deposits still can’t afford to buy homes

As Mr Smith says, the IFS has published its key findings on the falling rate of homeownership among young adults.

The independent research body reveals that in 2017, 35% of 25- to 34-year-olds were homeowners, down from 55% in 1997 while the average property price in England has risen by 173% after adjusting for inflation, and by 253% in London. 

This compares with increases in real incomes of 25- to 34-year-olds of only 19% and in rents of 38%. 

Property price rises relative to incomes have made it hard for young adults to save up for a deposit, with the number of people having to spend more than six months’ income on a 10% deposit for an average home up from 33% to 78% in the past 20 years, the IFS reports. 

Polly Simpson, a research economist at the IFS and a co-author of the research, comments: “Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit.

"Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one. These trends have increased inequality between older and younger generations, and within the younger generation too.”

Comments

In reply to by AD (not verified)

Can I assume that "AD " is not a landlord & has not risked their capital or the effort involved in renting good quality property to varied tenants from good to "B" awful, as usual there is this conception that if you have had the good fortune or "the temerity to make a profit" you should be penalised by a system that rewards the tardy & punishes those who get off their backsides I would like to retire but if I sell I will be punitively taxed because I have provided accommodation for over thirty years & have had the cheek to make a profit & paid taxes every year on those profits, if I sell I will incur CGT, the government did not assist me when the interest rate exceeded 12 percent but would now take away the profits earned by me for diligence over many years, if I then die "its got to happen at some time" the taxation system will then have another crack at my assets & tax my estate with Death duties. I have worked for what I have I would like my children to benefit in full for what I have,

In reply to by anonymous_stub (not verified)

Great news for landlords! They can just quietly arrange to sell to their private tenant for a certain amount and repurchase it immediately. Pocket the tax free gain. They will be in exactly the same position as before except the taxpayer has just handed them a nice tax free windfall. Repeat every three years. This is just Help to Sell version 2, large windfalls for developers and btl'ers. Furthermore it will be even more attractive for buy to letters to speculate on property relative to other assets, as they now know that property will be taxed less on capital gains. Should see home ownership rates drop to about 40-50% from the current 60% and property prices should go up by about 10-15% courtesy of the taxpayer.

In reply to by anonymous_stub (not verified)

Excellent idea I have rented my property for years and would love to able to do this.

In reply to by Paul (not verified)

What a load of nonsense. There are many people who have worked hard in various businesses and professions that have to pay tax on their earnings as you have. What is proposed here a give away from the average taxpayer, to landlords, similar to Help to Buy (that ofcourse achieves nothing since it doesn't raise the supply of property). Any reason that their taxes should go towards providing your children with benefits and not theirs? How incredibly selfish.Furthermore when you say punitively taxed, you are saying the huge profits that landlords have made simply because the land underneath their properties has massively increased in value through no hard work of their own, that this, is deserving of an extra tax break that those who invest in other businesses don't get? Dearie me.

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