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Sales of buy-to-let properties and second homes in Britain have jumped by 34 per cent in the past six years, underlining the growing financial pressure on landlords.
Savills, the estate agent, analysed official data on capital gains tax receipts for residential homes to estimate the yet-to-be-published total numbers.
It found sales of second homes and buy-to-let properties — which are liable for CGT, unlike gains from the sale of a primary residence — totalled an average 129,000 a year in the three years to April 2021. In the subsequent three years, they rose to an average 190,000 a year.
These sales now account for one in six of all property disposals, up from one in 15 in 2013-14.
Lucian Cook, head of residential research at Savills, pointed to factors such as higher stamp duty on landlords, the loss of higher-rate tax relief on mortgage interest and the prospective abolition of “no-fault” evictions. “Clearly, what we’ve seen is more financial and regulatory pressure on private landlords, and that has meant more sales in that market over the past three years.”
Savills used the most recent indicative monthly data and previous years’ annual numbers to come up with its estimate.
Landlords are increasingly nervous that Labour will bring in changes to CGT, leaving them with much larger bills if they sell.
Landlord Mick Wright, who owns two buy-to-let properties, decided in March to bring forward a sale of both homes, after taking a view on Labour’s strong polling figures. Selling two homes in the same tax year means a higher CGT bill, he said, “[but] in our minds was the expectation that a Labour government would somehow increase the tax burden on buy-to-lets.”
The Royal Institution of Chartered Surveyors on Thursday said agents had reported that new instructions from landlords were down, “which once again suggests the flow of listings coming on to the rental market is deteriorating”.
Landlord sales are concentrated in London and south-east England. Over the first three months of 2024, two-fifths were in London — a rental market hub, with 20 per cent of the stock of private rented homes in Great Britain, according to property site Zoopla.
Richard Donnell, Zoopla’s research director, said mortgage costs meant higher-rate taxpayers could only borrow 50 per cent of the value of a home in London, much lower than across the rest of the UK, where gross yields are higher.
“The prospect of further changes to taxation may also be a factor and long-term owners of residential property in London are sitting on some of the biggest capital gains that owners may want to crystallise for a range of reasons,” he said.
Labour did not set out any plans for CGT reform in its manifesto, but has not ruled out changes. It pledged not to raise income tax, national insurance or VAT, leaving CGT as a clear option for reform.
If CGT rates were to be aligned with income tax, the basic-rate taxpayer would pay 20 per cent, up from 18; and the higher-rate taxpayer would see a much steeper rise from 24 to 40 per cent. After allowances, this would mean an extra £6,200 on the higher-rate bill — and a boost of £1.2bn to the Treasury coffers overall, Savills said.
This was a likely scenario, Cook said. “Historically, we have paid capital gains tax at the marginal rate of income tax. It’s probably the most obvious option available to the current government if they want to raise more money from CGT.”
Savills found that investment and second home vendors paid an average of £12,300 tax per sale over the past three years, or an effective tax rate of 24 per cent after accounting for personal allowances. This suggested 39 per cent of these sellers were subject to the lower 18 per cent CGT rate.
Like Wright, landlords could pre-empt adverse reforms by selling now at the existing rates. Cook said: “In the short term, will we see more selling activity as people try and get in ahead of an assumed CGT rise? Clearly, with the Budget on October 30, if people are going to do it, they’re going to have to act pretty quickly.”
