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Capital Gains Tax burden forces landlords to defer sales plans

A new study by the National Residential Landlords Association suggests some landlords wanting to quit the private rental sector have deferred their plans because of the burden of Capital Gains Tax. 

The association’s regular quarterly survey discovered 45 of respondents saying CGT has been a factor in deciding to hold onto property longer than anticipated when first becoming a landlord.  

In another part of the survey, more than half of landlords polled who had property with EPC D or below said they will either sell some properties or exit the market altogether should the minimum C plans come back to the table. There is also substantial support for the idea of financial assistance for landlords making energy efficiency improvements, with 85 per cent saying this is vital in driving up minimum standards. 

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More generally, the survey suggests landlord confidence is increasing after several quarters of record lows.

The survey relates to sentiment in the third quarter of 2023 and this was 7.9 per cent more optimistic than in the previous three months.

The NRLA says the reasons behind this include the government’s decision to abandon plans for a minimum energy efficiency rating of C in rented homes, a fall in inflation and Michael Gove’s announcement that Section 21 will be scrapped only after court reform has been completed. 

Confidence was up in every region.

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    Well I am certainly not being held hostage 👮🏻‍♀️🤠 by HM Government. My selling plans are on track as now is the right time for my life plan’s. The situation is only going to get worse 🆘 so if not now… When 🤷‍♂️. I decide when I sell, no one else. If landlords start to think like this, then the tail is certainly wagging the dog 🐶.

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    I’ll echo everything you’ve said. Sold one last year and giving notice to another next week. We’ll then be selling the rest off when it suits us to “owners not landlords”
    Two can play their game. The housing shortage lies firmly at, in our case, the SNP and Holyroods door! They’re an absolute disgrace.

     
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    Agree, it's not putting me off, giving notice to the next one next week, to sell over the spring / summer. Still pulling out my deposit and any capital gain (less CGT). That will tide me over for a while, until interest rates start to come down a bit. Shame for the family who will have to find a new place on a higher rent, but they haven't been my best tenants, so hey ho.

     
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    100% Simon. I'm the same as you and have started selling up. I won't be held to ransom either and will take the hit with capital gains. The biggest problem. Here in Scotland is the first tier tribunal mob in Glasgow who have to approve your application to evict... I'm currently on my 3rd attempt to evict tenants from a house I've been trying to sell since over a year now. 3rd time lucky? Fingers crossed 🤞

     
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    Completely agree Simon, I'm selling, though not all. However my policy is once a tenant leaves that house will be sold.

     
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    Shane

    I have heard that the Glasgow tribunals often refuse an eviction because they don't believe that the landlord will actually sell and suggest it can be marketed before the tenants actually move out.

    Mental health and a letter from the GP seems to be needed to allow landlords to be allowed to sell their own property without accepting a lower offer due to its condition whilst still let to tenants.

    I tried to sell a property about 20 years ago before the tenants move out and it proved impossible because buyers couldn't see beyond the tenant's squalor.

    A week to completely clean and paint it produced two buyers competing for it after 13 completely unfruitful weeks.

     
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    Interestingly Capital Gains allowance now being phased out, effectively paying tax on interest you are paying, possible change of government factored in. When Labour find the private schools and non dom taxes produce less than anticipated guess where they will look to increase taxes. Reduce portfolio now or regret it later.

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    Interesting analogy and yes i'm sure Labour will be money collecting wherever they can to hand out yet further benefits and boost public spending. I work in the public sector and it is all too often shameful how money is wasted.

     
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    The NRLA need to spend some time in researching the value of EPCs. I pay for the heating in over 100 HMO’s and the EPC and other conservation measures have no effect. I know it doesn’t sound logical, and HMO tenants may not be typical of the average tenants or household. I’ve tried insulation grade A boilers double glazing, Energy efficient bulbs, and they make no difference to the amount of energy consumed in a HMO. I believe anything about conservation measures is the first three letters is all a con.
    Jim Haliburton, TheHMODaddy

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    I don’t understand Capital gains tax, say for arguments sake you bought a property 20 years ago for 200k now 400k apart from some minor claimable expense is that c/gain 200k ? but it didn’t cost you 200k you also paid the lender 100k and you paid tax on that 100k when you earned it, is that all nothing, your own un paid sweat & labour for 20 years keeping it going.
    Is it 28% of 200k ? forget about the 18% that’s only for sensible people that don’t pay much tax.

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    Not sure about your maths Michael.

     
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    You demonstrate a fundamental misunderstanding of your financial gain, leverage and capital gain.

    If you bought a house for £200,000 with a 25% deposit (£50,000 cash; £150,000 loan) and sell for £400,00, your original £50,000 has morphed into £250,000, a 5-fold increase.

    Meanwhile, a cash buyer who shelled out the full £200,000 to buy the house will have “only” doubled their money.

    Your interest payments on your £150,000 mortgage isn’t paying for your capital gain. It is paying for your leverage which makes the doubling of the property value into a five-fold increase in your cash.

    Both you and the cash buyer pay the same tax, something less than £56,000.

    The cash buyer has made a net profit of £144,000 from their £200,000 investment.

    You have made a net profit of £144,000 less interest payments from your £50,000 investment.

     
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    You pay capital gains on the difference between the price you purchased the property for (that includes deposit and the mortgage) and the price you sold the property at, with a £6k allowance (for this tax year).

    So in your case, your difference would be £200k and you pay taxes on the £194k.

    Whether you pay 18% or 28% depends on your income, Higher Rate Income Tax Payers (those who earn over £50,271 pre-tax) will have to pay 28%.






    It's OK though because National Insurance has been cut from 12 percent to a whopping 10 percent!

     
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    Hi Michael, I agree with your comments and I do feel that the points you raise, as has Jo, that our labour is not factored in and the fact that we do not get benefits of being able to invest in a SIPP, as we are not a business.
    I also like Tom's analogy and has certainly will help me in my thoughts when I have to pay this tax!

     
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    Johnny Doe

    A seller will pay 28% cgt when their taxable income plus capital gain exceeds £50,270 and much less in Scotland

    A capital gain almost invariably pushes a landlord into the higher rate tax band, irrespective of their taxable earnings.

    Michael

    You got higher rate tax relief on your entire interest payments up until Osborne started to distort the relationship between tax and actual profits.

    Using gearing or leverage and frequently remortgaging and reinvesting rental income, I turned a £6000 deposit investment about 30 years ago into a £4 million portfolio with about £1 million mortgage debt and £3 million equity.

    Whilst I don't intend to pay both cgt and iht, and accept iht is inevitable (and actually not that unfair), I couldn't really complain if I had to do so.

    I have mitigated the worst efforts of the SNP lunacy by now only renting to students and maximising my rental income at every tenant changeover but also at every other opportunity, whereas I used to happily rent to families and professionals and rarely increased rents during any tenancy.

     
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    Jim you are right the energy consumed & or wasted is down to the occupants.
    The same goes for Condensation Mould its the occupants but blame landlord.

  • Peter Why Do I Bother

    Two things on this article

    1. 45 respondents tells me that the NRLA did not canvas its members properly.
    2. With 100k membership surely it should be looking internally at who is leading it for such a poor response.

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    I don’t recall any survey about CGT.

     
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    But they don't canvas their members.
    That is why Ben Beadle is saying he welcomes section 21. If he would have had the courtesy to ask NRLA members their opinion on S21, he would have realised we unanimously want to keep S21. How on earth can he speak for us when he is going against the wants of it's members. The NRLA is the biggest landlord group and that just shocks me.

     
    Peter Why Do I Bother

    Ray, I have cancelled my renewal to the NRLA. As you have pointed out I have never ever received a direct communication from them regarding S21 or S24. Part of my cancellation I raised this point and said it starts at the top, doubt they will read or action.

    I work in customer services, feedback we expect as an industry average is 28%, this bunch thinks its acceptable to have returns of less than .05%..!

     
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    Peter, I have also cancelled my auto renewal.

     
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    My membership with NRLA has been cancelled when it comes to renewal end of the year. No survey received to ask my opinion on S21, S24, responsibilities of tenants for mould and dampness etc.

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    You are thee third so far on this forum, No doubt there are many more undeclared. Bye, bye, Ben.

     
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    Sell now while you can. Labour have already indicated they are going to increase CGT to 40 per cent.I don’t put it past them to treat the gain as part of your income and and tax it at the highest rate for the that year. While you consider this Labour have stated they are going to abolish Section 21 immediately and grant lifetime tenancies. So you will be stuck with sitting tenants as it was before the 1980’s.

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    At the last General Election the Labour policy was for CGT to be at your marginal rate on an indexed gain.
    That is far more palatable than 28% on the entire gain.
    For example a house I bought in 2000 for £80K is now worth around £450K. Partly due to being in an Article 4 area. It's indexed value would only be £277K.
    So under the current CGT system the tax due would be about £100K.
    The indexed version at 40% would be about £68K.
    Another one cost £66500 in 1991 and again is worth around £450k. Under current system CGT would be around £104K.
    Indexed value is £332K so indexed CGT @40% would be around £47K.
    In both of those examples Article 4 has caused a huge chunk of the gain. It feels kind of fair to be taxed on something that was pure luck but completely unfair to be taxed on inflation.

    Still a ton of money but much more chance of me actually selling at those levels.

     
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    Ben Beadle and the NRLA are totally incompetent no other trade body lobbying government has failed its members in the way the NRLA has.

    At this point paying their subscription and being a member of Benny Jeremy Beadle’s NRLA is akin to paying into a Ponzi scheme it’s just wasted money ladies & gents!

    Peter Why Do I Bother

    Agreed Daniel, for the eighty odd quid a year we get a discount card...

     
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    We also get a discount on deposit protection fees if we use the mydeposits insured scheme and a discount on HMO licensing if we are accredited.

    While the NRLA is certainly a very poor replacement for the old NLA being a member saves me far more than the cost of the membership fee.

     
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    Jo, I use DPS rather than mydeposits so not a benefit to me.

     
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    Yes Jo I agree indexation was a good thing. The last Labour government under Blair was very fair. However the next Labour government will be much harsher with no allowance for galloping inflation that they will probably cause.

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    That was actually in Corbyn's manifesto.

    I'd really like to know the Reform party housing policy. Some of their other policies sound quite attractive but I can't find any mention of housing.

     
  • jeremy clarke

    As agents, we have to have CMP and our "body" is PropertyMark or Safe Agent as we have limited options to buy CMP. Neither of these bodies has supported agents in any of the legislation changes, they let us down on tenant fee ban and are noticeably absent in their fight against Renters Reform bill although they do occasionally announce in the press that they have written a letter!!

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    The power of the pen is mightier than the sword?

     
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    First, it should be a LANDLORDS AND TENANTS REFORM BILL.
    Second, if there is going to be a National Portal which Landlords have to join then by equal measure there should be a National Portal for Tenants.
    Third, we should adopt the same approach as many other Countries: there is no such thing as wear and tear. Photos are taken at the start of a tenancy and if an item such as carpets, laminate, wallpaper, painted finishes or a piece of furniture etc then the Tenant has to supply a new one or indemnify a LANDLORD.

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    You don't have a national register of customers do you? For a start it would be against gdpr regulations.

     
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    How glorious to see you lot sheepishly putting your toys back into your prams after realising it might cost some money 😂

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    James, save your cardboard boxes. You will need them soon.🤣

     
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