The National Residential Landlords Association (NRLA) has submitted a radical proposal to the government, changing how Capital Gains Tax (CGT) is assessed.

In its official submission ahead of next month’s Budget, the NRLA says it opposes the idea mooted by some analysts that CGT be increased to equalise it with income tax.

But it says the current CGT regime is not working well and submits this analysis.

Between 2015 and 2024 average UK house prices increased by 46.2% while general inflation rose by 34%. 

So because of inflation, real house price growth over that period was just 9.1%. 

The association says: “Under current arrangements around four-fifths of the tax paid on capital gains in that period reflected inflation, not real growth in value.”

So it proposes that CGT in future be calculated taking into account the original purchase price, Stamp Duty, other acquisition costs and improvements. 

Tax relief could then apply, taking into account length of ownership.

The association claims: “Tax would be paid on real gains in value not on inflation. In examining the costs for these reforms, we have asked the Treasury to consider the wider economic benefits of a more dynamic market and the need for landlords to unlock capital, especially to invest in upgrading their homes to make them more energy efficient.”

The NRLA makes two other suggestions to Chancellor John Healey ahead of the October 28 Budget.

It wants Local Housing Allowance rates to be unfrozen – something Andy Burnham called for before becoming Prime Minister – and it wants investment in a retrofit workforce to execute energy efficiency improvements.