A feared rise in capital gains tax would be ‘the final nail in the coffin’ for private landlords already struggling with high charges and red tape, industry figures warned today.
Capital gains tax is charged on the profit made from financial investments such as shares or buy to let properties, with rates set at between 10 and 28 per cent.
But with Labour vowing to avoid rises in income tax, national insurance and VAT , there are fears Chancellor Rachel Reeves could bring the levy in line with income tax rates, which would hike the upper band to 45 per cent.
Andy Partoon, who is from Solihull and has 25 years’ experience as a landlord, said any rise in capital gains tax would serve yet another blow to the private rented sector.
He told MailOnline: ‘Labour has been talking about rent caps and the repealing of Section 21 evictions. On top of stamp duty and all the other red tape, an increase to capital gains tax would be another nail in the coffin for the buy to let market.
‘People don’t want to become landlords any more, which is bad for renters. Why on earth would you want to when you face so many charges and red tape, and don’t even have control over your own property?’
Andy Partoon, who is from Solihull and has 25 years’ experience as a landlord, said any rise in capital gains tax would serve yet another blow to the private rented sector
Kundan Bhaduri, Executive Director at London developer The Kushman Group, warned that a hike in the rate of CGT would lead to entrepreneurs deciding it was not worth risking their money on property investments
He said the difficult environment for residential landlords had persuaded him to sell two properties already this year after tenants left.
‘I have another two going on the market next week and I’m offering cash to selected tenants to persuade them to leave so that I can also sell those,’ he added.
Kundan Bhaduri, Executive Director at London developer The Kushman Group, warned that a hike in the rate of CGT would lead to entrepreneurs deciding it was not worth risking their money on property investments.
He told MailOnline: ‘This could be a complete halt on small developers who are working with their own personal capital.
‘If you are an entrepreneur who has to pay capital gains at 45% when you sell your investment property, what is the incentive to take the risk with your money?
‘It’s only going to hinder the development of further homes – at a time when the government wants to build more houses.
‘This is a fundamental mismatch of values – they are asking capitalists to help ”build the nation” while taxing them like socialists.’
The Prime Minister sparked panic with a gloomy Downing Street speech on Tuesday, in which he warned Ms Reeves’ upcoming budget would be ‘painful’, with ‘those with the broader shoulders’ expected to ‘bear the heavier burden’.
Financial advisers, lawyers and mortgage experts predict a capital gains hike would cause mass disruption to the rental market and manoeuvres by investors to protect their finances.
Patricia McGirr, founder of the Repossession Rescue Network, which helps homeowners in financial distress, told MailOnline: ‘At a time when we need people to be more self-sufficient, we’re punishing those who’ve done just that. It’s a kick in the teeth.
‘The talk of Labour’s tax hikes is sparking panic among hardworking people who’ve spent years building up their savings and investments.
‘We’re seeing a surge in homeowners and investors desperate to sell off properties, before the government raids what they’ve worked so hard to achieve.’
She warned that the rush could flood the market, driving down property prices and shaking up the stock market, and that tax changes would ‘send a harsh message to anyone trying to secure their future’.
Ms McGirr added: ‘Whilst it might also create a land of opportunity for those able to take advantage of panic selling, it’s could destabilise recovery.’
Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, said some investors are now viewing the current situation as ‘securing a lifeboat before the storm’.
He told MailOnline: ‘For investors, the only thing more certain than uncertainty is the fear of a tax hike, and a seismic shift could be on the horizon.
‘We are already witnessing the tremors of the looming tax threat, with uncertainty prompting many middle-class savers and landlords to reconsider their asset portfolios.’
He said potential tax hikes could ‘profoundly impact both the property and stock markets, with the fear of increased capital gains tax driving landlords to sell their properties prematurely’.
Mr McKeown also pointed out that in the stock market, the anticipation of higher capital gains taxes will ‘likely lead to increased volatility as investors rush to sell off profitable shares to lock in current tax rates’.
Steven Mather, a business solicitor based in Leicester, told MailOnline that since Labour got into power last month, ‘every single enquiry about a business sale or purchase has stressed the importance of completing the transaction before the Budget on October 30’.
He added: ‘For many, they have said that if they cannot complete before then, the deal will be off if capital gains tax changes or there’s changes to Business Asset Disposal Relief – previously known as Entrepreneurs Relief.
‘Clients selling for circa £1million or less are the ones particularly affected. They’ve spent a lifetime building a business, paying all the taxes, to find out that they may be taxed even more on sale when seeking retirement.’
Others warned that further tax rises would lead to the ‘trickle’ of landlords selling up to turn into a ‘flood’.
Simon Bridgland, mortgages expert at Release Freedom, said: ‘The widest rivers which flood, started off as a trickle upstream, which is exactly what I can see at the moment.
‘Within the last week I have personally had conversations with five landlords, all of which are looking to sell off some of their property. They intend to make use of the current capital gains tax regime whilst they can before any likely changes take effect.
‘Some though are hoping to see it through as they feel that the current leaders in Westminster will have a short tenure. Some of our clients are starting to also gift money to loved ones during their lifetimes.
‘The thought of an extra pocket to fill with HMRC isn’t going down well at all and so some are doing all they can to preserve the money they and their loved one have earned.’
Prime Minister Sir Keir Starmer gives a doom-laden speech at Downing Street on Tuesday
Zoopla’s House Price Index shows property values have grown in the first six months of 2024
Ben Perks, managing director at Orchard Financial Advisers, said: ‘Landlords are getting hit from all angles.
‘An increase in capital gains tax could see people reluctantly keeping hold of property for longer at a time when the Government want to see more property available to residential buyers. This could therefore be a double edged sword.’
Harps Garcha, Director at Brooklyns Financial, added: ‘(This is) another nail in the coffin for landlords, particularly those who became landlords by accident rather than choice, who are facing an increasingly tough landscape.
‘The combination of rising costs, stricter regulations, and the looming threat of an increase in Capital Gains Tax is pushing many to the brink, prompting some to consider selling before the new rules take effect.
‘This is the last thing the rental market needs right now as recent statistics have shown there has been a reduction of 25 per cent in rental properties since 2019.’
For capital gains tax, the gain made is taxed – rather than the amount of money received – and it must be paid on a series of ‘chargeable assets’.
The Government currently defines these as: ‘most personal possessions worth £6,000 or more, apart from your car; property that’s not your main home; your main home if you’ve let it out, used it for business or it’s very large; any shares that are not in an ISA or PEP; or business assets’.
However it is thought that the scope could be widened by Labour to impose capital gains tax on profits from financial assets when someone dies, which are currently exempt.
Justin Moy, managing director at EHF Mortgages, said: ‘It’s very evident that landlords in particular are reading the potential impact of increased capital gains tax.
‘We have four buy to let remortgages that have been cancelled as the landlord has decided to sell purely due to this threat.’
He said the firm also helps to let a few properties and prospective tenants are having to move because landlords have served Section 21 notices on their current homes which are used to evict tenants.
Mr Moy added: ‘One three-bedroom property we manage in Braintree had in excess of 50 enquiries in just one day. The vast majority made mention of their landlord selling, hence their need to move.’
Chris Barry, director at Thomas Legal, added that property investors now ‘seem convinced a capital gains tax rise is coming and this has prompted some owners to sell earlier than may have perhaps wanted to’.
However, he continued: ‘The more pressing issue is that property investors over the past two years have experienced higher borrowing costs and have had less ability to be able to offset expenses, meaning highly leveraged residential property is now unlikely to be viable.
‘We have seen many more investors selling because they are struggling to evidence a return on investment rather than the nervousness around a future tax increase.
‘The property market seems unaffected by the wave in supply probably due to the company sales of distressed assets to larger investors who have the ability to purchase in cash therefore the stock rarely makes the open retail market.
‘With borrowing rates coming down and demand increasing, we see property prices holding strong and even increasing over the coming years.’
Prime Minister Sir Keir Starmer during a visit to the Siemens Energy plant in Berlin today
Rohit Kohli, director at The Mortgage Stop, pointed out that following Labour’s general election win their ‘tone changed almost immediately and Starmer’s message yesterday that ‘things can only get worse’ is very different from the Tony Blair days’.
He continued: ‘We have been speaking to landlords in particular who are convinced that they are going to be targeted by the Budget, in particular by capital gains changes on October 30 and are looking to exit as early as possible.
‘It’s already having an impact – we’ve seen some landlords cancel planned purchases and worst of all we have had conversations with some tenants who find that their landlords are selling and they want to buy their own home but either don’t have the deposit or simply don’t meet the lender’s affordability.
He cited one couple the firm spoke to who are being forced to leave their home in few months because the landlord is selling. They cannot afford the mortgage to buy their home, but are now facing a rent increase from £900 to almost £1,500 if they rent another property.
Another possible target for the Government is inheritance tax which is paid on the estate – including the property, money and possessions – of someone who has died.
Current rules mean there is normally no inheritance tax to pay if either the value of your estate is below the £325,000 threshold; or you leave everything above this mark to your spouse, civil partner, a charity or a community amateur sports club.
The £325,000 threshold has been frozen since 2009 – and the standard tax rate is 40 per cent, which is only charged on the part of the estate above the threshold.
A woman walks past estate agent signs outside homes in Lewisham, South East London (file)
ANALYSIS: Seismic shift on the horizon?
For investors, the only thing more certain than uncertainty is the fear of a tax hike, and a seismic shift could be on the horizon.
We are already witnessing the tremors of the looming tax threat, with uncertainty prompting many middle-class savers and landlords to reconsider their asset portfolios.
The potential tax hikes could profoundly impact both the property and stock markets, with the fear of increased capital gains tax driving landlords to sell their properties prematurely.
In the stock market, the anticipation of higher capital gains taxes will likely lead to increased volatility as investors rush to sell off profitable shares to lock in current tax rates.
The government must weigh the trade-offs between immediate fiscal needs and long-term economic vitality, as a tax hike today could be a growth gamble tomorrow.
These early reactions are reminiscent of past policies as selling assets now might feel like jumping ship, but some see it as securing a lifeboat before the storm.
GABRIEL MCKEOWN is head of macroeconomics at Sad Rabbit Investments
But the Government could tinker with the rules and potentially look at an inheritance tax raid on pensions, which are currently used by people to pass on their wealth without having to give HMRC a cut.
If the Chancellor makes retirement funds part of someone’s estate and therefore subject to inheritance tax on death, this would drag more people into the bracket.
Michelle Lawson, director at Lawson Financial, said: ‘People and consumers are feeling battered and down-trodden over years of hardship. The Government just seem determined to pillage the pockets of hard-working individuals just trying to make a living.
‘Some of those happen to be landlords, intentionally or accidentally, who are now seriously reconsidering their options. All of this will have the consequences of hurting the people it is set to protect.
‘It is getting to the point where it is just not worth owning anything as the Government is on a tax rampage to refill their own coffers after their own financial mismanagement and failings at the expense of those that have worked hard, saved and budgeted well.
‘As well as an exodus of landlords continuing, this may very well push more to seek residence overseas away from this constant chaotic hamster wheel circus.’
As it stands, homeowners wanting to avoid inheritance tax can pass on £500,000 – or £1million if they are a couple – as long as they leave their home to their children.
However, Labour could also cut or reduce this exemption, and therefore again make more people pay inheritance tax.
On a visit to Paisley in Renfrewshire this morning, Ms Reeves repeatedly refused to rule out a hike in inheritance tax and capital gains tax at her first Budget.
‘I’m not going to write a Budget two months ahead of delivering it,’ she told broadcasters. ‘We’re going to have to make difficult decisions in a range of areas.
‘On spending, on welfare and tax we’re going to have to make a series of difficult decisions. But I’ll set out that detail in the right and proper way on October 30 at that Budget.’