Landlords could be offered a “good landlord” tax break if they sell homes to sitting tenants, according to pre-budget rumours.
Under the proposal, suggested by right-wing thinktank Onward, 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. Onward says the £1.3bn cost of the policy could be covered by curtailing other tax perks enjoyed by buy-to-let investors.
Chancellor Philip Hammond is thought to be weighing up the proposals ahead of the Budget on 29 October.
Under existing rules, investors who sell a rental property are liable to pay capital gains tax at 28 per cent on any profits they make. But under the Onward plan landlords would be eligible for tax relief with the windfall split equally with the tenant, who could use it as part of their mortgage deposit.
The think tank calculated that the average gain per property would be £15,000, meaning a first-time buyer could expect to benefit by £7,500. Due to higher house prices in London, a tenant in the capital could receive £19,500 under the scheme.
The proposals were cautiously welcomed by the Residential Landlords Association (RLA) which made similar suggestions last year.
RLA policy director David Smith says: “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.”
The RLA doesn’t support Onward’s calls for landlords to dis-invest from the sector, saying that decreasing the supply of rented homes would leave many young people stranded and continuing to rely on the home of mum and dad for a place to live.