Many landlords are giving up on the buy-to-let market over fears Labour is plotting a Capital Gains Tax raid on property profits.
Currently, any profits made on properties, other than a main residence, are taxed at 24 percent for a higher rate taxpayer, but this could rise to 40 percent.
A number of think tanks and groups close to Labour suggest that this change, which would bring taxation of investment profits into line with income tax, could help fill a black hole in government finances.
New research published today by the Royal Institution of Chartered Surveyors (RICS) based on information from estate agents suggests thousands of landlords are pulling out of the market.
RICS said the number of new landlords instructing estate agents across the country fell 16 percent in the three months to July, but in some areas the drop was much steeper.
In East Anglia, new instructions were down by a startling 59 percent over the same period, and in the East Midlands they were down 37 percent.
Feared changes to the tax system come at the same time as landlords have seen other changes that have made offering buy to let properties more difficult and expensive.
The latest RICS market survey said “yet more legislation” and the prospect of an increasingly “unfair” tax regime have diminished the appeal of being a buy-to-let investor.
Chancellor Rachel Reeves has reiterated the Labour’s manifesto pledge not to raise VAT, National Insurance or income tax during this Parliament.
However, she has repeatedly failed to rule out aligning capital gains with income tax bands – a move that could leave the average landlord £11,000 worse off, according to analysis.
RICS said Labour’s “bias” towards supporting renters and improving their rights and protections has also played a part in many investors’ decisions to sell up.
The number of properties available to rent in Britain has already plummeted by almost half since April 2019, according to estate agents Hamptons.
John Haigh, a Knaresborough-based surveyor, said that the sale of properties by landlords could create a glut that will drive down prices. While this would harm people trying to sell, it could be a positive for buyers.
“More properties are coming to market alongside new builds. Inevitably, this is leading to a downward trend on sale price,” he said.
John Chappell, an East Midlands surveyor, said more landlords are withdrawing from the sector to sell up “especially since seeing rumours of the Government’s plans for further strengthening of tenants’ rights”.
He added: “No self-respecting professional supports poor housing or (poor) landlords, but this has the potential to cause a supply shortage crisis.”
Allan Fuller, a surveyor in Putney, south west London, said landlords are anticipating legislation which will be “too biased” towards tenants.
Fellow west London surveyor William Delaney added: “Further rent increases this year are inevitable as the private rental sector shrinks.
“Faced with yet more legislation, a dysfunctional court service, and an unfair tax regime, the appeal of retaining their investment considerably diminished.”
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “Capital Gains Tax speculation has intensified.
“As Rachel Reeves peers into the hole in the public finances and is set to reveal just how deep it goes, rumours are swirling as to whether CGT changes could be used to generate extra cash to help fill it.
“One of the suggestions doing the rounds is that capital gains tax rates could rise to match income tax. It was one of the things the Office for Tax Simplification explored in 2020. This would see a shocking hike for UK investors.”
