Chancellor Rachel Reeves announced changes to the rates of Capital Gains Tax (CGT) in the Labour government's first budget since coming to power.
However, the Chancellor has announced that the capital gains tax on the sale of buy-to-let properties and second homes will not be changed.
Many landlords will breathe a huge sigh of relief as many pundits expected significant increases.
Not increasing this tax may have averted a significant sell-off by landlords of rental portfolios, including properties with rooms to rent, such as HMOs, and so avoid further upward pressure on already sky-high rents.
It wouldn't have affected those renting spare rooms in their own homes, as Capital Gains Tax wouldn't apply in any event, assuming it is their private principal residence and has yet to be fully rented.
While holding CGT to the current level may not affect landlords for the time being, other aspects of the budget may well affect them.
What Will Landlords Do Now?
The big question for us here at RoomsForLet is, will the fact that these changes have been avoided mean landlords look to sell their rented properties to avoid increases in the future? Increasing CGT could see a quick sell-off to avoid the increases. However, once the increase comes into play, there is evidence this could deter many from selling.Depending on the decision of a majority of landlords, it can significantly affect the rental sector as a whole.
Where many landlords opt to sell, this will increase the already severe pressure on available rental stock, potentially forcing rents to a more unaffordable level.
Alternatively, landlords choosing to retain their rental properties can have a knock-on effect on the housing market. With fewer properties coming to market, house prices could increase, meaning those tenants considering purchasing in the months ahead may be forced to alter their plans.
We expect more landlords to hold on to their rental properties and potentially more landlords coming to the market following this news.
If you are a landlord, particularly one offering rooms to rent, please let us know what you think now.
If you are a landlord and retaining rental properties or have available rooms to rent, please register as a landlord here to begin posting your ads.
So, How is the Capital Gains Tax Changing?
The maximum rate of CGT will be increased to 24 percent. This is a lower increase than many pundits expected, but it will affect those looking to sell assets in the future.The government will increase the lower rate from 10 to 18 percent and for higher-rate taxpayers from 20 to 24 percent.
Landlords, however, won't see this increase in rental properties or second homes for now. There is no saying this won't change in future budgets.
Capital gains tax increase lower than expected in some quarters
It had been suggested that the higher rate could have doubled from 20% to 40% in line with the higher income tax rate.Nigel Lawson aligned the two tax rates in a Conservative budget some years ago. Investors genuinely feared this could happen again.
Increasing the rate by such an amount could have destabilised the shares market with investors considering options where increased tax liability would be an issue.
With a lower-than-expected increase, share prices could rally as some uncertainty is removed from the market.
All that said, the changes to Stamp Duty land Tax SDLT, could well have an opposite and significant adverse effect.
It seems to be good news for landlords, though. Tenants should also breathe a sigh of relief, as further upward pressure on rent prices may have been avoided.As a tenant, if you are looking for a room to rent, please register here or search our available rooms now.