Anything “good” in the red box?

16 October 2018

We are only a couple of weeks away from the Autumn budget. The Chancellor will deliver this, a little earlier than normal, on Monday 29 October. The pre-budget rumours and predictions are well underway; one of those within the press concerns residential property.

The government has already introduced some measures to address issues in the housing market e.g. SDLT relief for first time buyers and the Help to Buy scheme. However, the latter has been controversial with criticisms that it has not always benefited buyers and has pushed house prices up. There have been calls to do more to alleviate the problem and, without wishing to sound cynical, there may also be a desire to “speak” to those affected prior to the next general election.

It has been reported that the Chancellor is considering a new “good landlord” tax break; offering landlords a capital gains tax (CGT) exemption on sales to tenants who have been living in a property for at least 3 years. Under the current rules, landlords selling residential property pay CGT at 28%.

On the face of it, this could be viewed as an ideal opportunity for some landlords wishing to exit the property market. The recent capping of loan interest relief essentially allows relief at the basic rate of tax only. This means that many landlords with highly geared mortgaged properties face a large increase to their tax bill, but are not able to mitigate this without incurring CGT (and possibly SDLT) liabilities.

However, this proposal may not be the incentive it first appears because it is speculated that the landlord would be required to split the windfall from the sale with the tenant, who would use it towards their mortgage deposit. As reported it effectively suggests a 50% CGT liability, compared with the current 28% rate. In which case it would seem unlikely to offer much of a tax break or have the intended impact.

We will have to wait and see whether the “good landlord” proposal makes it into the Chancellor’s red box later this month. If it does, will the details of that result in a “good” tax break after all?

Our summary of all the Autumn budget announcements will be published on our website here.

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