UK Landlords Rush to Sell as Tax Hike Fears Loom

The UK property market is experiencing a significant shift as landlords rush to sell their properties. This trend is driven by growing concerns that Rachel Reeves, the Chancellor of the Exchequer, may implement changes to capital gains tax (CGT) in the upcoming Budget scheduled for October 30, 2024.

According to data from Rightmove, a leading property website, nearly 20% of homes currently listed for sale were previously rental properties. This marks a substantial increase from 8% in 2010, highlighting the rapid transformation of the market. The situation is particularly pronounced in London, where almost one-third of properties for sale were formerly part of the rental sector.

This surge in property listings coincides with a 14% year-on-year increase in overall homes for sale. The recent Bank of England interest rate cut has encouraged both buyers and sellers to re-enter the market, further fueling this trend.

Tim Bannister, a representative from Rightmove, expressed concern about the potential consequences for renters:

"We've seen over the last few years how the supply and demand imbalance can contribute to rising rents, so there is a worry that without encouragement for landlords to stay in rather than leave the rental sector, it is tenants who will pay the price."

The private rented sector in the UK has more than doubled in size since 2002, underscoring its importance in the housing market. However, recent years have seen increasing challenges for landlords, including rising costs, taxes, and new legislation. These factors have made it less attractive for some to remain in the rental sector.

The impact of these changes is already evident in rent prices. According to the Office for National Statistics, rents were 8.6% higher in July 2024 compared to the previous year, only slightly cooling from the record annual increases of over 9% experienced in the spring of 2024.

The potential equalization of CGT rates is a particular concern for many landlords. Marc von Grundherr of London estate agency Benham and Reeves commented:

"If the Labour Government was to follow through with it, it could make for a significant increase in the tax paid by the average landlord when the time did come for them to exit the sector."

It's worth noting that CGT was introduced in the UK in 1965, and current rates stand at 10% for basic rate taxpayers and 20% for higher rate taxpayers on most assets. The government has already implemented several measures affecting landlords in recent years, including a 3% stamp duty surcharge on second homes and buy-to-let properties introduced in 2016, and the gradual reduction of tax relief on mortgage interest since 2017.

As the number of private landlords in the UK peaked at around 2.9 million in 2019, the current trend of landlords exiting the market could have significant implications for the housing sector. With the average UK house price having increased by over 65% in the last decade and a persistent housing shortage, the potential reduction in rental properties could exacerbate existing challenges in the housing market.