The chancellor Rishi Sunak is said to be considering proposals by the Office of Tax Simplification (OTS), a Treasury-based body, to reform capital gains tax in light of the economic and fiscal impact of the Covid-19 crisis, signalling future raid on second homeowners, including buy-to-let landlords, but this could potentially have an adverse impact on the private rented sector.
The government’s tax adviser recently recommended that capital gains tax be overhauled with proposals that could see the number of people hit by the duty rise significantly.
The move has the potential to bring in an extra £14bn by reducing exemptions and doubling rates, according to the review, which was commissioned by the chancellor.
However, the chancellor’s plans could cause homebuyers, investors, and landlords to exit the market if there is a major increase in CGT in the near future, a fresh report shows.
The study found that over half of landlords are considering divesting their portfolios and leaving the PRS due to an increase in regulation and rules, which would dramatically reduce the supply of much needed privately rented homes.
Recent tax hikes, including stamp duty changes on buy-to-let and the loss of tax-free allowances, are driving away landlords and crippling the sector.
Regulatory tax changes, along with high maintenance costs have all been identified as the main barrier posing a threat to their buy-to-let investments.
“The Covid-19 pandemic has had a huge impact on the lettings sector, said Aaron Short, founder and CEO at Accommodation.co.uk, which conducted the survey.
Comments (9)
Councils may appear to hate HMO, but make a lot of money from them! Many homeowners claim single person occupancy council tax. If they take a lodger, would they lose that benefit?
Yes they WOULD lose SPD but only if they advised the Council they had a lodger!!! How would the Council know whether an OO had a lodger!? I guess if the lodger applied for a local library membership!! But ordinarily how are any lodgers occupying a home detected!? If HMRC come a calling the lodger is a guest. A guest may stay I think about 150 days a tax year for no more than 30 days at a time. Disprove that HMRC. All lodger rent of course paid in cash. Of course all this is tax evasion and Council tax fraud. But everyone is doing it!! I certainly believe that Councils should have a more thorough regimen before they allow SPD. No idea what that would or could be. But in these difficult times you can’t really blame OO from ducking and diving..
Remember most OO are on the Electoral Roll and Councils definitely cross reference which wasn’t the case a few years ago.
Being on the ER is vital for most OO.
It is how they leverage their ownership to achive decent credit.
A SPD is only worth about £350 per Council Tax year.
Not being on the ER could cost a lot more than that in dud credit offers.
I cashed in my final CG in London a year ago. I have no CG in Yorkshire, and I don’t see that changing any time soon. If it does, it will only go to the government. My yield is in the pan due to a non-paying tenant I can’t evict. Fortunately, I’ve invested in a family home which I’ve extended and modernised to a high standard. Holiday let is the plan, but if that gets hit this time around, it may be lodgers. I remember we had lodgers when I was very young. It seemed very common then.
I don’t know why Govt doesn’t just announce that all lodger income is now tax free. That would incentivise many homeowners to take in lodgers. There are millions of vacant rooms in homeowner properties. It surely must make sense to have these vacant rooms utilised. If they were there would be a massive reduction in HMO demand. Councils would like this as they definitely dislike HMO. HMO could then be utilised as single occupancy family dwellings of which there is a massive shortage. Govt must surely realise by now that the RFRA scheme is routinely evaded. So why not just formalise this well known evasion about which HMRC can do little to prevent. It would be a massive political win for Govt which would also have very beneficial effects for homeowners where lodger income could be the difference to paying the mortgage or being repossessed. During these straitened times any Govt action that gives tax free income to a significant part of the population must surely be appreciated from an electoral perspective by that Govt. Making all lodger income tax free would motivate many homeowners to consider taking in lodgers. The publicity would galvanise homeowners to consider this as an option. Of course having lodgers is a massive invasion of domestic privacy. But sometimes sacrificing that privacy is well worth it. I believe I read somewhere that there are supposed to be about 25 million vacant rooms within homeowner properties. This massive National resource should be utilised. Making officially ALL lodger income tax free would I believe motivate many homeowners to take on lodgers. Govt has nothing to lose with such a policy as no homeowner who receives more in lodger income than the RFRA ever declares that to HMRC. So Govt might as well just formalise the situation.
I also believe that making all lodger income tax free would spark a mini home extension building boom.
Under PD rights many homeowners would expand the size of their properties to better cope with multiple occupying lodgers.
A big problem though would be that Mandatory HMO legislation would need to be removed for OO properties.
If not then most homes could only cope with 1 lodger.
Any more and a home would need to meet Mandatory HMO licence requirements.
Not many OO would be prepared to comply with those requirements.
Govt would also need to remove HMRC treating an OO as operating a business from a home as PPR relief is wiped out and CGT paid.
OO are already evading CGT with multiple lodgers anyway so again Govt just needs to formalise the situation so as to have no effect on PPR relief no matter how many lodgers occupy an OO home.
There is no point LL remaining so. Those that have built up decent CG should cash out now. Never will there be a better time to do so for at least the next 20 years. It is clear that Govt is coming for 2nd property owners. 2nd homeowners have no political support and Govt knowing this will heavily increase taxes on 2nd properties. In fact any properties owned after a PPR will be heavily taxed. Far better to sell up everything and invest in one mortgage free 4/5 bed house as a PPR and then take in lodgers. NOT tenants. There is no legal requirement for a homeowner to be in residence so many days per month. It is really only resi insurance requirements that specify absences longer than 31 days need to be notified to the insurance company. Lodgers are far more effective. The RFRA may still be used for a 2nd home. But of course it would be liable for increased CGT when it is sold. But at least no issues getting rid of rent defaulting lodgers. No future eviction bans will have any effects on lodgers. They can be removed easily. The day of the tenant is over. Lodgers will be the better solution. That means that only single unrelated lodgers will be worth having. Where families will rent god only knows. LL will be selling up in their droves once the eviction ban is lifted. This pandemic has revealed to LL how quickly Govt is prepared to throw them under the proverbial bus. There will be another pandemic along soon. Whether LL could survive another eviction ban is debatable. Personally I reckon many LL have received the fright of their lives with this eviction ban. They will surely wish to change things to the point of ceasing to be a LL I believe hundreds of thousands of these frightened LL will be leaving the PRS as soon as possible.
Where all the homeless tenants will live beats me.
Further erroding many individual landlord’s pensions. We have to be left with something to show for our years of investment.
The cuts to CGT reliefs over recent years have already had a major impact on BTL. I was fortunate to exit the London market when I did, but was still hit quite hard. Today, unless a landlord has been in that market for many years, their will be very little capital appreciation, and it looks like rents will also drop, hitting yields. Of course, it will hit capital appreciation everywhere, it’s just that there is less outside London. In short, I can’t see this as a ‘future’ for smaller landlords just starting out, and once I’ve offloaded my Yorkshire BTLs, I’m out of the PRS.
Landlords won’t be able to exit in time if he starts this from April
it may well reduce new landlord investment though
Long b4 the current government assault on private landlords, I have always opposed moving the goal posts on investments. Most private LL’s are small investors for their retirement. Any removal of tax reliefs should only apply to the new investors.