The sale of buy-to-let properties and second homes in Britain has surged by 34% over the past six years, highlighting the increasing financial pressures on landlords.
A recent analysis by Savills, the estate agency, using official data on capital gains tax (CGT) receipts for residential homes, provides insight into this trend. The analysis revealed that sales of second homes and buy-to-let properties—liable for CGT, unlike primary residences—averaged 129,000 per year in the three years leading up to April 2021. In the following three years, this figure rose to an average of 190,000 per year.
These transactions now represent one in six of all property disposals, a significant increase from one in 15 during the 2013-14 period.
Lucian Cook, head of residential research at Savills, attributed this rise to factors such as higher stamp duty for landlords, the reduction of higher-rate tax relief on mortgage interest, and the anticipated abolition of “no-fault” evictions. “Clearly, we’ve seen more financial and regulatory pressure on private landlords, leading to increased sales in this market over the past three years,” Cook noted.
Savills’ estimates were based on the latest indicative monthly data and historical annual figures.
Landlords are increasingly anxious about potential changes to CGT under a Labour government, fearing much higher tax bills if they sell. Landlord Mick Wright, who owns two buy-to-let properties, decided to sell both homes in March, prompted by Labour’s strong polling performance. Selling both properties within the same tax year resulted in a higher CGT bill, but Wright explained, “[we] expected that a Labour government would somehow increase the tax burden on buy-to-lets.”
The Royal Institution of Chartered Surveyors recently reported that new instructions from landlords have declined, suggesting a deteriorating flow of rental market listings.
The majority of landlord sales are concentrated in London and southeast England. During the first quarter of 2024, two-fifths of these sales occurred in London, which is a major rental market hub. According to property site Zoopla, London accounts for 20% of Great Britain’s private rented homes.
Richard Donnell, Zoopla’s research director, noted that rising mortgage costs mean higher-rate taxpayers can now only borrow 50% of a property’s value in London, compared to higher borrowing capacity in other parts of the UK, where gross yields are better. “The prospect of further changes to taxation may also be a factor, and long-term owners of residential property in London are sitting on some of the biggest capital gains that they may want to crystallize for various reasons,” he said.
Although Labour has not detailed any specific plans for CGT reform in its manifesto, it has not ruled out changes. The party has pledged not to increase income tax, national insurance, or VAT, making CGT a likely target for reform.
If CGT rates were aligned with income tax, basic-rate taxpayers would see their rate rise from 18% to 20%, while higher-rate taxpayers could face a steep increase from 24% to 40%. After allowances, this change could mean an additional £6,200 on the higher-rate bill, with an overall boost of £1.2 billion to the Treasury, according to Savills.
Cook described this scenario as probable, stating, “Historically, capital gains tax has been paid at the marginal rate of income tax. It’s likely the most obvious option available to the current government if they want to raise more revenue from CGT.”
Savills found that sellers of investment properties and second homes paid an average of £12,300 in tax per sale over the past three years, resulting in an effective tax rate of 24% after personal allowances. This suggests that 39% of these sellers were subject to the lower 18% CGT rate.
Like Wright, other landlords may choose to sell now to avoid potential future tax hikes. Cook added, “In the short term, we may see more selling activity as people try to get ahead of a possible CGT rise. With the Budget on October 30, those looking to sell will need to act quickly.”
If you are facing a property issue, lease issue, or dispute, feel free to contact Aman Solicitors today.
