As the UK anticipates the Autumn Budget on 30 October 2024, landlords are preparing for potential changes that could significantly impact their property investments. One of the key areas of concern is the expected rise in Capital Gains Tax (CGT) rates, which has prompted many landlords to consider selling their rental properties before the new measures come into effect.
Currently, CGT rates for residential property sales stand at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. However, many experts predict that these rates could increase substantially, with some suggesting a potential rise to as much as 45%, aligning with income tax bands. This Autumn Budget prediction has led to growing speculation that the Chancellor, Rachel Reeves, will announce a significant CGT rate hike to help bridge the £22 billion shortfall in government finances. With Labour’s commitment not to increase National Insurance, Income Tax, or VAT, CGT is a likely target for generating additional revenue.
For landlords, CGT is applied to the profit made when selling a property that isn’t a primary residence. Properties used as a main home are exempt from CGT through Private Residence Relief (PRR), but rental properties are subject to the tax. If rates do increase, following the Autumn Budget many landlords could face a substantial tax burden, making it advantageous for them to sell now rather than risk paying more after the changes.
But the looming CGT hike isn’t the only factor driving landlords to sell. The Bank of England’s recent decision to reduce the base interest rate by 0.25%, bringing it down to 5%, has added further complexity to the situation. The combination of potentially higher taxes and lower interest rates has prompted many landlords to reassess their portfolios, resulting in a growing number of rental properties hitting the market.
This influx of properties presents opportunities for buyers who have struggled in a competitive housing environment with limited supply. With more homes available, buyers may find it easier to secure a property, particularly if prices soften in the short term.
However, not all landlords are rushing to sell. Some experts believe that the housing market is at the bottom of a cycle and that property values are poised to rise in the coming months and years. The property market has historically moved in cycles, with peaks and troughs, and many argue that the current downturn could be followed by a period of recovery, making property a valuable long-term investment.
For landlords, the decision to sell now to avoid a potential CGT increase should be weighed against longer-term factors. Rising house prices and increasing rents could offset the potential tax burden, making it more profitable to hold onto properties in the years to come. While selling now may seem like a smart move in the short term, it’s essential to consider future market trends and how they might affect property values and rental income.
Despite the uncertainty, a mass exodus of landlords is not anticipated. However, the Autumn Budget is likely to have a ripple effect on both the property and rental markets. If more landlords sell their rental homes, the supply of rental properties could shrink, leading to higher rents and increased competition among tenants. On the other hand, a larger number of properties on the market could ease pressure on buyers, helping to balance supply and demand.
At Ello Property, we understand the challenges and uncertainties landlords face with the upcoming budget. Our team of experts is here to offer guidance and support, helping you make informed decisions about your property portfolio. Whether you’re considering selling or want to understand how potential changes to Capital Gains Tax might affect your investments, we’re here to help. Contact us today for expert advice on navigating the property market during these uncertain times.
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