‘Avalanche of landlords’ to sell before tax breaks cut in half

Landlords Buy To Let Tax
Landlords Buy To Let Tax

Landlords are rushing to sell their properties before tax breaks on investment profits are cut in half.

The annual capital gains tax allowance is falling to £3,000 at the start of the new tax year, down from £6,000 this year. Last year, the allowance stood at £12,300.

Lewis Shaw, of brokerage Riverside Mortgages, said there would be “an avalanche of landlords selling” at the start of next year due to a triple whammy of higher mortgage rates, and “punitive property taxes wiping out any potential profits”.

He added: “All this at a time when property prices are falling and set to fall further, any landlords under the cosh would be well advised to offload their properties, and the faster, the better to try and preserve the capital accumulation they’ve enjoyed over the past decade.”

Property investors in the higher-rate tax bracket pay 28pc on any capital gains they make outside of the allowance when they sell a home.

Mr Shaw said this could be the perfect opportunity for first-time buyers to snap up a bargain, as stamp duty land tax bills shrink in line with falling prices.

While house prices rose 0.2pc in November, according to Nationwide, they still remain 2pc lower than a year ago.

Elliott Culley, of brokerage Switch Mortgage Finance, said many landlords were looking to sell their properties in the current economic climate.

He added: “They have already taken a hit with increased tax implications and some have much higher costs from current mortgage rates. The last thing they want is to be hit by a capital gains tax allowance drop.

“I’ve seen a surge in first-time buyers looking to purchase properties from their existing landlords. Most have given time frames that they want to complete before the end of the tax year.”

Peter Chadbron of advisers Plan Money said he has “never known” so many landlords wanting to sell investment properties.

He said: “They’re realising they should sell it this tax year before the allowance goes down even more. Many have realised they should have done it last year before it was cut the first time.”

But it is not just landlords who will be affected by the tax changes. Investors will also be forced to pay more when selling shares.

Mr Chadborn fears some could have “missed the boat” if they haven’t acted already.

He said: “If you’re selling units in a General Investment (GIA) account, the time to realise a gain is when the value of your investments is lower.

“But markets have jumped in the last week, which will mean bigger gains. Absolutely don’t wait till the last moment, but keep an eye on the value of your investments.

“Be mindful you could lose out by selling at the wrong time – if you’re taking them out to do your ‘Bed and Isa’ (when investments are sold in a dealing account and bought in an Isa) then the timing is crucial.”

At the start of the year, investment platforms such as Bestinvest reported an uptick in investors rushing to do just this before the capital gains tax allowance fell from £12,300 to £6,000.

Jason Hollands, managing director at the stock broker, said he would not be surprised to see the same at the end of this tax year.

He added: “I would expect another surge in coming months when the allowance is cut sharply again. People tend to think about this after Christmas once they’ve done their tax return.

“Many investors will make use of it while they can to mop up investments in taxable environments. They are already maxing out their Isa allowances, so are going to find themselves in a much more restrictive environment come April.

“The cuts to capital gains allowances are brutal. Investors could quite easily incur capital gains tax in the normal course of managing their portfolio.”


The five key rules that every buy-to-let landlord must know

Read more

Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month, then enjoy 1 year for just $9 with our US-exclusive offer.