Interactive Investor

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

8th October 2018 09:38

Hannah Nemeth from interactive investor

Loading

Share on

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.

  • Major London housing assocation L&Q calls an end to fixed term tenancies

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. 

  • Most tenants don't want three-year tenancies, report shows

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.”

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up