CGT relief for landlords?

The government may be considering giving Capital Gains Tax relief to landlords selling property, according to the Daily Mail, in a bid to free up homes for first time buyers.

Also set to benefit are pensioners who downsize, again with the motivation that where some older generations are under-occupying property, this could incentivise selling, to free-up housing stock for those further down, or at the starting rung of the property ladder.

As we have already reported, first time buyers are being priced-out of buying, due to the steep rise in the cost of living.

By offering landlords a break on Capital Gains Tax (CGT), this could bring property back onto the market that would not otherwise be there. But, will it adequately counter the gap in housing stock caused by missed home building targets?

At present, landlords pay 18 percent CGT as a basic rate tax payer, or 28 percent as a higher rate tax payer, on any gain resulting from the sale of property.

Why is the government investigating these options?

Given the rising cost of living has put first time buyers back in an untenable position, in terms of being able to afford to buy property, and Michael Gove has strongly alluded that there continues to be a pattern of under-delivery on home building targets, the government has to do something to bridge the gap.

Former housing minister, Christopher Pincher, has told the House of Lords that four in ten properties are under occupied. He suggested that these properties would be put to better use by their being used by families with children.

Data from the 2020/21 English Housing Survey shows that 53% of owner-occupied households were under-occupied, which equates to 8.2 million homes. In the private rental sector 13% of households were under-occupied, or 565,000 homes and 8% of the social rented sector or 320,000 homes.

Under-occupation is defined as a household with two or more bedrooms more than needed.

How would a change to CGT influence the market?

Were CGT relief to come into play on sales of property from landlords to first time buyers, then the commercial benefits would be notable. If the relief were only available when selling to first time buyers, it would certainly make those individuals more attractive to sell to, than second steppers.

However, if there were two offers on the table, a lower one from a first time buyer but with the advantage of CGT relief, and a higher one from a second home buyer without that benefit, logic would say that the landlord seller would want the higher offer to be matched, to achieve the most beneficial commercial outcome.

Will this change go ahead?

The report makes it very clear that thoughts around this idea are in the very early stages. However, the Prime Minister is facing a great deal of criticism at the moment over ‘Partygate’, so policy to put his party in a better light would likely be beneficial.

It has been suggested he is “keen to do something radical on housing before the next election.”

We will be monitoring the story for updates.