United Kingdom

Spring Budget a threat to PRS?

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A person handing over a set of keys to another person next to a Sold sign

Has the government’s new Budget just made the private rented sector’s supply issues worse?

From next month, the Capital Gains Tax paid by higher-rate taxpayers when selling homes will fall from 28% to 24%. With primary residences usually exempt from Capital Gains Tax under Private Residence Relief, the change will mostly affect buy-to-let landlords and other second home owners.

Tenant activists warned that the tax cut would encourage more landlords to sell up, potentially leaving thousands of tenants homeless. To prevent this, Generation Rent called on the Chancellor to only grant relief to landlords who sell with sitting tenants.

But for the government, encouraging landlords to sell up seems to be part of the goal. The Treasury’s notes on the Budget say it would make more properties available for homebuyers and increase Capital Gains Tax receipts.

Could many rented homes be lost?

A 4% cut to CGT isn’t necessarily much of an incentive for landlords to sell (provided it isn’t reversed), as they will get the same tax break whether they sell now or later and waiting is only likely to result in further capital growth – especially as the housing market appears to be picking up again.

Meanwhile, report some real estate professionals, capital growth has been low over the past few years in many markets. The smaller the taxable capital gain, the less effect the tax cut will have.

And while the government is giving with one hand, it is taking away with the other. The CGT personal allowance is being cut from £6,000 in 2023/24 to £3,000 in 2024/25. According to analysis from estate agency Hamptons, higher rate taxpayer landlords will pay more tax on any capital gain of less than £68,000.

Against this background, landlords are already leaving the market faster than new investors are replacing them. According to Hamptons, more buy-to-let properties have been sold than bought every year since 2016. High interest rates, Section 24 ending the possibility to deduct mortgage interest from taxable income, and the looming loss of Section 21 evictions have all damaged landlord confidence.

Fewer tax breaks for furnished holiday lets

Holiday rental investors may also be considering selling up after the Budget. Their properties are being brought into line with longer-term residential rental properties for tax purposes, meaning:

  • No longer being able to fully deduct mortgage interest from their taxable income
  • Losing Capital Gains Tax reliefs, including Business Asset Disposal Relief
  • Losing tax relief for fixtures within the property

These changes will take effect from 1 April 2025.

Other Budget headlines

Budget 2024: Property industry reacts to the chancellor’s statement – Property Industry Eye

Chancellor scraps Multiple Dwellings Relief – AccountingWEB

Budget: Household Support Fund extended for six months – Local Government Chronicle

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