Rental sector experts are expressing growing fears that the relatively low-key Budget announcements made on Monday could herald something more dramatic for the private rental sector when detailed changes shake through.
Of particular concern to some is the measure which means that from April 2020 the Capital Gains Tax ‘exempt period’ before a property is sold will be cut from 18 months to nine months, subject to exemptions for disabled homeowners or those moving into care, for whom the period will be 36 months.
The ‘lettings relief’ of up to £40,000 will also be restricted and will only apply to homeowners who have shared the home with their tenants.
For example Kate Eales, national head of lettings at Strutt & Parker, says the consultation into this latter change is welcomed but the end result, if it ends up as proposed by Chancellor Hammond, could produce challenges.
"If changes come into effect it could mean that lettings relief for Capital Gains Tax is no longer applicable to landlords, regardless of whether the property was at one time their home” she says.
“This may well be closing a loophole but would affect many landlords who at the moment are choosing to rent out properties they own and keep them as investments for the longer term, after they themselves have moved out. This could represent yet another tax on the private rented sector which is already facing considerable challenges” Eales insists.
Dorian Gonsalves, chief executive of Belvoir, adds that while there were missed opportunities in the Budget - he says the Chancellor could have, for example, given tax breaks to landlords to encourage them to offer longer tenancies - his real interest is also in what the Capital Gains Tax changes could mean.
“It’s very interesting that the Chancellor made reference to the fact that CGT is currently not levied on the gain of main residences, and that this situation will remain unchanged. The fact that CGT was mentioned at all in this context could perhaps hint towards a future decision by the government to levy CGT on main residences in the future” he warns.
HouseSimple’s chief executive officer, Sam Mitchell, says there will be indirect damage to the central sector supply from the Budget.
“By cutting lettings relief and reducing the CGT exemption period to the final nine months of ownership, any homeowners who were thinking of let to buy as an option, will now have second thoughts as they’ll likely face a much larger capital gains tax now if they do” he says.
“And anyone who rented out their previous home, and has equity locked up in that property, will now be thinking it’s best to sell sooner rather than later if they want to avoid a massive capital gains bill further down the line.”
And Patricia Mock, tax director at business consultancy Deloitte, adds: “When they come in, these changes will affect those who have moved out of their property more than nine months before it is sold at a gain, and any homeowners who have moved out to rent their property before selling at a gain. Live-in landlords and those who have never occupied the properties they are renting out will be unaffected. All homeowners should be aware of these changes. Sales before April 6 2020 should not be affected.”
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Another clear attack on the private rental sector, which this article makes reasonably clear.
The CGT exempt period after moving out of your own home and letting it used to be 3 years, and had been for a very long time. It was halved (unfairly I thought) to just 18 months from April 2014. Halving it again to a piffling 9 months is just a short step from abolishing it all together.
A very similar thing happened regarding council tax on empty and unoccupied properties. Originally as long as a property was unoccupied it was exempt form c/tax as the tax was designed (in 1992 when introduced) to pay for local services used by the residents. Then a 1 year limit was introduced, then (and this bit is the only part I feel was fair) it became a requirement to allow inspections and show the property was unfurnished to demonstrate it really was unoccupied (which I thought fair enough). Then the limit was halved to 6 months (still just about ok for normal lettings and voids between tenancies). Then we were "consulted" as a box-ticking exercise - I remember spending quite a bit of time carefully responding to the question asking if we (or I) agreed that Landlords should contribute more to the costs of helping "the most vulnerable people in society", i.e. pay more tax to the council so they can fritter it away on projects and people that are not our responsibility and have nothing to do with us and we have no say or control over.... obviously nobody actually bothered reading my (or anyone else's) replies because they'd already decided to slash the acceptable 6 months to a totally unacceptable 2 weeks, suddenly costing us literally thousands of pounds a year in unfair, un-budgeted tax (council tax) between every single tenancy, and also taxing us while we renovated and improved properties for tenants (another disincentive to invest).... then after a very short period the by then trivial and insulting 2-weeks "exemption" was abolished altogether and suddenly (this time without token/fake "consultation") we found ourselves being forced to pay c/tax for empty properties the moment a tenant moved out....
...and it's quietly getting worse.... there is a sneaky c/tax provision that most landlords are unaware of.... if a property was empty for 2 years or more the council could charge a 50% SURCHARGE council tax "to encourage the return of the property to occupation" (obviously in reality they love having the property empty because they don't have to provide any services, such as refuse collection or anything for people as there is nobody there, but they get 50% more revenue for absolutely nothing at all).... then they halved THAT to 1 year.... just wait for the 1 year to be abolished and we will all find ourselves paying a 50% surcharge (extra) for council tax the day a tenant moves out, to "encourage" us to re-let the property, as if we weren't already trying to do that to earn rent and pay our loan costs (that for many people are already no longer allowable as the legitimate pre-tax business expenses that they jolly-well should be)! ....and by the way.... to increase the "encouragement" they are planning, I'm told, to double the surcharge council tax currently supposed to be for "long term unoccupied properties", but in the end no doubt for any unoccupied properties. when that happens we'll find ourselves being fleeced to pay DOUBLE council tax for empty unoccupied properties we're already trying to re-let, and double council tax for every day spent repairing or renewing a property to keep it in good condition. I'd say that's a DISCOURAGEMENT (not encouragement) to maintain property and/or even remain in business.
Please continue to keep a close eye on all these abolitions of our essential allowances, scope creep of all taxes both for local and central government, and legislation attacks on us endlessly increasing our costs and risks, and undermining our rights, often simply to provide what the politicians believe will be handy temporary headline grabbing and vote winning gimmicks (that inevitably fail to deliver anything except more damage to our increasingly beleaguered sector).
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