The Chancellor must ensure landlords are not driven from the market by any rises in Capital Gains Tax (CGT) in his first Budget, according to the Association of Residential Letting Agents (ARLA).
ARLA is calling on the government to treat private rented property as an ‘entrepreneurial business activity’ for Capital Gains Tax purposes in the upcoming emergency Budget.
According to ARLA, increases in the rate of CGT could create a dire shortage in rental property supply, as investors will inevitably seek to sell off their portfolios.
Further, it would likely deter future investors from entering the sector.
Ian Potter, Operations Manager of ARLA, said: “Landlords play a vitally important role in providing affordable housing in the UK.
“Yet if rental homes are removed from the sector because of changes to CGT, it will put further strain on an already struggling market and will result in fewer people being able to put a roof over their heads.
“The rental property market remains fragile and needs government protection to support it.
“We have many reports from member agents advising that landlords are already looking to sell.
“Estate agents are also reporting an upsurge from landlords enquiring about selling.
“If the government does decide to proceed with increases to Capital Gains Tax, it must be tapered to minimise distortions to the market.
“We would also like to see rollover relief introduced, so that landlords are not penalised when they a sell a property and purchase another.
“This measure must be put in place to counter the historic lack of investment in private rental housing.”
ARLA also believes that classifying private rented property as an ‘entrepreneurial business activity’ would be simple to enforce if it is restricted to let property, with an income tax return for letting income and a written tenancy agreement showing that the property has been let for a minimum period of time acting as evidence.
This proposal has received industry-wide support from the Council of Mortgage Lenders, the British Property Federation, and the National Landlords Association.
ARLA is also calling for incentives to be introduced to encourage private sector landlords to improve their housing stock.
The government estimates that approximately 750,000 homes in the PRS fail to meet Decent Homes Standard, which equates to 25 percent of the sector.
Potter commented: “An incentive scheme where landlords are treated as entrepreneurs within the fiscal regime would create the right economic conditions for the improvement of housing stock.
“The government must encourage landlords to make these improvements in order to meet energy efficiency targets and provide good quality housing for tenants.”
Incentives for landlords to improve their housing stock could include allowing landlords to access funds from the proposed “Green Deal” to encourage investment in the PRS; removal of VAT on the purchase of materials and labour to improve older property; an introduction of capital allowances for landlords improving older housing stock; an increase in the Landlords Energy Saving Allowance (LESA) to include the installation of central heating systems and a re-assessment of the ‘slab’ structure of Stamp Duty to create a fairer system.
Potter continued: “We do believe these incentives could be tax neutral in the medium to long term and the government’s own figures show how important the Private Rented Sector is to meeting the housing needs of the country.
“A healthy and vibrant sector benefits tenants and allows landlords to re-invest and expand their portfolios.”
