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"If changes come into effect it could mean that lettings relief for Capital Gains Tax is no longer applicable to landlords, regardless of whether the property was at one time their home” she says.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.”