Potential Budget CGT relief and profit split for selling to long term tenants?

Potential Budget CGT relief and profit split for selling to long term tenants?

9:18 AM, 8th October 2018, About 3 years ago 38

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On Friday we reported on the RLA Press release RLA ask for longer term tenancy tax incentive

However, over the weekend the Sunday Times has reported that government may consider adding an incentive to Landlords for selling to their long term tenants in the Budget on 29th October.

The Article said: “Under plans that have found favour in Downing Street, landlords would not pay capital gains tax when selling to tenants who have lived in a property for three years or more.

“The plan is designed to spur landlords to offer longer tenancies and then to sell on to a new generation of homeowners. Conservatives say a plan could be unveiled their think tank, “Onward” and is under consideration for inclusion in the Budget”

Potentially landlords would be eligible for CGT tax relief with the profit split equally with the tenant, who could use it as part of their mortgage deposit.

News from the Onward Website, Click Here to view, said:

“A new policy paper on the private rented sector in England, argues for a new route to ownership for private renters and greater incentives for landlords to offer long-term tenancies.

“The paper argues that Ministers should give Britain’s private renters a new Chance to Buy their rented home by rewarding landlords who sell to long-term tenants.

Onward’s  3 proposals:

  • Existing buy-to-let properties would be eligible for 100% capital gains tax relief if the property is sold to a sitting tenant who has lived there for 3 years or more.
  • The gain from this tax relief would be split evenly between the landlord and the tenant, giving the landlord a windfall when they sell and the tenant thousands of pounds towards their mortgage deposit.
  • Onward proposes that the Treasury should pay for this policy by tightening other tax reliefs for buy-to-let investors, including reducing the Private Residence Relief period from 18 months to 6 months and abolishing Lettings Relief of up to £40,000.

Therefore, for Landlords there will be some element of giving in one hand but taking from another.


by Rob Thomas

12:46 PM, 13th October 2018, About 3 years ago

If the government wants to encourage landlords to sell in sufficient numbers to really boost home ownership, it should offer a time limited CGT exemption to any landlord selling to anyone who intends to live in the property. Of course, there would be some risk of people gaming the system that the law would need to deal with.

Splitting the saved CGT with the tenant is a gimmick which would backfire as it means the landlord hasn't avoided CGT but only avoided 50% of it, in which case far fewer landlords might be minded to sell.

by terry sullivan

13:07 PM, 13th October 2018, About 3 years ago

Reply to the comment left by Joey at 10/10/2018 - 20:29
why would i give the tenant anything??? no chance

by AJ

13:40 PM, 13th October 2018, About 3 years ago

surely this wont work with people who are moving their portfolio into limited companies, or people who are buying in limited companies as then surely any profit from the sale is then taxed via corp tax on profit.

by Rob Crawford

17:54 PM, 13th October 2018, About 3 years ago

Reply to the comment left by terry sullivan at 13/10/2018 - 13:07
Tenant or HMRC!

by Jo Westlake

22:42 PM, 13th October 2018, About 3 years ago

I can't see how this would work in most parts of the country due to the rental and mortgage affordability multiples. Tenants can generally afford to rent significantly better properties than they can afford to buy.
For example assuming a 4.8% yield on a £250000 property the rent would be £1000 a month. A tenant would need an income of £30000 to clear affordability referencing. An income of £30000 at 4.5 times income would get a mortgage of £135000. Where does the shortfall come from?
Either tenants are earning way more than the media would have us believe or rent is a much lower percentage of income than is frequently reported or people have large amounts of savings at their disposal or this idea would only work on very high yielding properties.
How many properties are there where this idea would actually stack? Are any of them in the South?

by Dr Rosalind Beck

23:11 PM, 13th October 2018, About 3 years ago

There's also a problem in the North (to generalise - I include South Wales in that!) - in areas where there are high rates of negative equity or low levels of capital gain, there is no pot to share. If anyone knows the rates of negative equity in the UK I would be very interested to see them.

by Rob Thomas

13:15 PM, 14th October 2018, About 3 years ago

Hi Jo

You make a very good point. Although lenders can and do sometimes lend more than 4.5 times income, this is the most many people will be able to borrow thanks to onerous mortgage regulations.

But the irony is that if someone earning £30,000 could get a mortgage for £225,000 (thus needing only a 10% deposit to buy at £250,000), it would cost them £954 a month including interest and capital at 2%, of which only £375 is interest. So mortgage regulation is the real cause of people not being able to buy.

by Grumpy Doug

12:43 PM, 15th October 2018, About 3 years ago

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