The government faces calls to overhaul capital gains tax (CGT) amid warnings that current rules discourage investment in rental homes.
The National Residential Landlords Association (NRLA) says landlords face tax bills on inflation-driven property price increases, rather than genuine gains.
It therefore wants the chancellor to announce reforms in the forthcoming Budget to encourage long-term investment in the private rented sector.
Meanwhile, rental supply remains under pressure.
Rightmove figures show that each available rental property attracts an average of 10 enquiries. That is twice the pre-pandemic level.
The NRLA argues that current tax rules compound the shortage by discouraging landlords from investing.
Its analysis found that just one-fifth of house price growth between 2015 and 2024 represented real-terms gains. Inflation accounted for the remaining four-fifths.
However, CGT generally applies to the difference between a property’s purchase and sale price, subject to allowable costs and reliefs.
Landlords call for CGT overhaul
The NRLA therefore wants the Treasury to adjust taxable property gains for inflation.
Under its proposals, the government would increase the original purchase price and qualifying capital expenditure in line with inflation.
As a result, landlords would pay less CGT on price increases attributable to inflation.
Furthermore, the association wants relief to reflect how long landlords retain properties for rental use.
Long-term investors would benefit. However, short-term property speculators would receive no relief.
In addition, safeguards would prevent inflation adjustments from creating or increasing allowable capital losses.
Genuine increases in property values would still remain subject to CGT.
‘That’s not a real gain, and it shouldn’t be treated as one’
Ben Beadle, chief executive of the NRLA, said: “All regions of this country desperately need more homes to rent, yet our tax system fails to encourage landlords to make long-term investments to provide them.
“It is absurd that investors face capital gains tax on increases in property prices that are simply the result of inflation. That’s not a real gain, and it shouldn’t be treated as one.
“Taxing inflation devalues the worth of an investment, and any potential return. If nothing changes potential investors will be better off leaving cash in the bank, where they face none of the risks or difficulties inherent with providing homes.
“The chancellor has an opportunity to put this right. A fairer capital gains tax system that recognises inflation and rewards long-term investment would help rebuild confidence in the sector and support the supply of rental homes.
“If we want renters to have more choice and affordable places to live, we need a tax system that encourages investment rather than undermining it.”
