Capital gains tax break urged for landlords selling to tenants

At a time when 40 per cent of young adults are unable to afford to buy a home, a think-tank has suggested that offering capital gains tax relief for landlords could encourage them to sell buy to let homes to tenants.

The Treasury is weighing up the Help to Buy proposal, whereby landlords would not have to pay capital gains tax when selling up to tenants who had been living in a property for at least three years. The plan has been drawn up by the right-wing think-tank Onward, which suggests the £1.3bn-a-year cost of the policy could be covered by reducing other tax incentives currently available for buy-to-let investors.

Currently, investors who sell a rental property are liable to pay capital gains tax at 28 per cent on any profits they make, which is a big disincentive to selling up. However, under the Onward proposal, the landlord would be eligible for tax relief, with the cash split equally with the tenant, who could use it as part of their mortgage deposit.

But besides giving 50 per cent of any growth in value of the property to the tenant, landlords are expected to see any private residence relief cut from 18 months to six months and the scrapping of lettings relief of up to £40,000.

Onward says 88,000 tenants are likely to take up the offer each year, which, it claims, would allow almost 450,000 to switch from renting to owning a home over five years.

The average gain is calculated at £15,000 a property, which would give the landlord and tenant £7,500 each. The amount would depend on the location of the property, with homes in London providing a tenant with, on average, almost £20,000 towards a deposit.

The think-tank also suggests that other landlord tax breaks, such as wear and tear allowances, could become dependent on landlords offering three-year tenancies.

“These proposals would reward landlords who offer long-term tenancies and give today’s generation of private renters an opportunity for ownership. It is time to give private renters the chance to make their house their home,” says the report Make A House A Home

However, buy to let trade body the Residential Landlords Association argues that research shows capital gains tax incentives may not encourage landlords to sell investment property.

“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 CGT is applied would incentivise landlords to sell their properties to sitting tenants,” said RLA policy director David Smith.

“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.”



Get a landlord insurance quote

Get a quote online in under 4 minutes