‘I’m a landlord – capital gains tax rise in Budget would feel like robbery’
Landlords fear they will be forced to sell their properties to cope with the effects of the upcoming Budget if Rachel Reeves goes ahead with raising capital gains tax (CGT).
Earlier this month, it was revealed that the Chancellor is considering raising CGT as high as 39 per cent in the Budget in an effort to increase funds for public services.
The wealth tax is paid by about 350,000 UK taxpayers and is levied on the sale of assets including second homes and shares but at significantly lower rates than wages.
Property owners who make a profit that exceeds their taxable allowance when they sell a property they do not live in are among those who have to pay CGT.
The Prime Minister has suggested people who get their income from assets such as shares and property could be hit with tax rises in this week’s Budget.
Sir Keir Starmer told Sky News that these groups “wouldn’t come within my definition” of working people for whom he has promised not to raise taxes on.
Ahead of the expected changes, some landlords have started selling their rental properties to avoid being hit by a potential increase. An increasing amount of landlords have switched to owning their rental properties as a rental company.
More than 5,000 limited companies were created in Great Britain in September to hold buy-to-let property, a 28 per cent increase year on year, according to research released by Hamptons this month.
Kerry Pace, 61, is an accidental landlord because she has been unable to sell her flat in Sanderstead, south London, after it was discovered to have unsafe cladding and failed its fire safety checks.
Ms Pace told i that she and her husband had planned to buy a new flat in Croydon, south London, that was more suited to their needs, but have been unable to sell their flat for over four years.
“We had no idea at the time that this wouldn’t be resolved quickly – nobody had heard about the cladding issue,” she said. “We thought it would be resolved quickly and, in a few months, we’d be able to sell the flat.”
Ms Pace had already started purchasing her new property in Croydon, so proceeded with the payment by raising money against another property she owns in the area, which she has had for over 20 years.
“That now has a massive mortgage on it and that will be affected by capital gains,” she added.
Ms Pace said she would have sold her Sanderstead flat were it not for its unsafe cladding, and would have also sold the property she has owned for over 20 years were it not for the high CGT she would have to pay.
Keeping both properties meant Ms Pace had to get a mortgage, while her husband cashed in his pension, so they could raise the funds needed to purchase their new Croydon flat.
Commenting on the potential rise of CGT after the Budget, Ms Pace told i: “The whole thing is just robbery. It’s really excessive and I don’t think anybody should pay almost 40 per cent on their capital gains.
“If you buy a property, you’ve invested an awful lot of money into that property and it’s an unnecessarily huge amount of tax. Especially when the situation is out of your control – that makes it doubly unfair.
“It all just feels very personal. People have this perception that landlords have a lot of money lying around. It feels like the Government is picking on people who don’t get much support. They think it’s an easy win.
“Before I came down here, my last job was working in a Jobcentre. I’ve done any job under the sun. I’ve worked all my life. To have the rug pulled out of you this late in life is just gross.”
Jack Malnick, a property expert with 20 years’ experience and founder of SellHouseFast.co.uk, told i the pressure is mounting for landlords, due to anticipated reforms in areas like CGT and inheritance tax relief.
He added that the selling market is seeing particular surges from landlords or second home owners looking to shed assets from their property portfolios.
Mr Malnick said: “Some are already starting to sell off properties, with a 10-year high in buy-to-let sales reported in areas like London. This could lead to a rush of landlords exiting the market by early 2025, causing a surge in property listings as they aim to avoid higher tax burdens.
“There is a 100 per cent increase into SellHouseFast.co.uk and the fast sale market in general. We are seeing record percentages of homes for sale on the open market as well – Rightmove saw 18 per cent of homes in September had previously been rented out vs 8 per cent the year before at the same time.”
Susan Turner, 76, from Cranbrook near Exeter, became a landlord after inheriting properties from her father.
Ms Turner sold one of the properties following divorce and bought a bungalow with a £5,000 mortgage which she paid off within two years.
Ms Turner, who is an independent salesperson for health food and cosmetics company Forever Living, said she is only able to shield herself from the impact of government cuts and tax rises as she is still working.
“There’s very few people that can decide to walk out of the divorce, move into a bed-sit, and look for house of their own,” she said.
Ms Turner has not decided to sell her second home at this time but she is considering making plans to shield herself or her relatives from a rise in CGT.
Her rental property, a one-bed flat, is located near Exeter, within walking distance of the city centre. She charges £750 a month for rent.
“It commands good rent,” Ms Turner said, who has been renting out the property for around 25-30 years. She said changes around CGT would not prompt her to sell immediately but she is looking into her options.
“It probably doesn’t change what I’ll do with the property, but it changes my thoughts about what I need to do,” she said.
“I’m thinking I do need to do something fairly wisely, sooner rather later, and instead of just avoiding the issue, I need to address it.”
The action Ms Turner is considering is transferring the properties into her relatives’ names or switching to joint ownership. An estate does not have to pay any CGT on the property or assets that weren’t sold before the person who owned them died.
But if a property is sold during probate and its value has risen since the person died, there is usually CGT to pay.
Ms Turner is also concerned that landlords are being increasingly targeted by Government polices.
She said: “I find with my rental property, it always seems to be more and more emphasis is put on the people in it – I think, that it’s very difficult for us, as landlords, to have any rights over it.
“I agree that the state of some properties that landlords put tenants into is absolutely atrocious, and I would never want to put an animal in some of them. So I think there needs to be some sort of regulation as to it needs to be a certain standard.”