A prominent analyst is warning that landlords fearful of a rise in Capital Gains Tax could sell up in droves this autumn – and that in turn could derail a possible wider housing market recovery. 

There’s been widespread speculation about possible CGT rises in the October Budget, fuelled by comments from Chancellor Rachel Reeves. 

Now Sarah Coles, personal finance analyst at business consultancy Hargreaves Lansdown, says last week’s Bank of England base rate cut its likely to herald modest house price growth over the rest of 2024. But she warns that ”it’s not going to be a patch on the boom of recent years” and that any CGT change may put a lid on increases.

She says: “It’s worth keeping an eye on buy to let investors, who will be getting increasingly alarmed by speculation over Capital Gains Tax rises. If Rachel Reeves boosts the CGT rate to match income tax, a higher-rate taxpayer would see their tax bill rise by two thirds when they come to sell. 

“There will be property investors who decide it’s not worth this risk, and will sell up before any potential change comes in. If there are too many of them, it could create a glut of property for sale and keep prices down.”

Buy to let purchases have already slumped badly, down 14% from 224,700 in 2022/23 to 193,700 in the year ended June 30 2024.

This figure comes from the chartered accountants and business advice company Lubbock Fine, which has analysed government data.

This has meant that purchases of BTL properties have fallen to their lowest levels since the government introduced the higher rate of stamp duty on additional dwellings in 2016. At its peak, 287,200 purchases were made in the year to June 2021

This fall in BTL purchases has partly been driven by the sharp rise in interest rates on BTL mortgages but also by a series of measures introduced over the last few years that have made BTL property less attractive from a tax point of view.

Those changes include preventing landlords from deducting mortgage interest costs from their income; reducing the expenses landlords can claim against tax bills for ‘wear and tear’ on properties; cutting Private Residence Relief, which increased the amount of Capital Gains Tax landlords must pay when selling a property that used to be their main home; and of course introducing an additional 3% rate of Stamp Duty on sales of buy to let properties.

Says Andy Noton, partner at Lubbock Fine: “We’ve seen a marked decrease in purchase activity for rental properties.

“Concerns that the new Government will increase CGT at the next Budget or add to the red tape for landlords is encouraging more landlords to exit the market and fewer to buy.”

“However, a continued fall in mortgage rates could change all that. Rents have continued to climb so a reduction in finance costs could suddenly improve the economics for landlords.”