UK Landlords Sell Fast Amid Capital Gains Tax Fears

Record 18% of homes for sale in September were rentals, as landlords rush to offload properties before potential tax hikes.

Rightmove has reported a remarkable trend in the UK real estate market, revealing that a record 18% of homes listed for sale in September had previously been rented out. This statistic, the highest since the company began compiling data in 2010, suggests a significant shift in landlord behavior, potentially influenced by apprehensions surrounding an impending increase in capital gains tax (CGT) in the forthcoming budget.

To provide some context, a mere 14 years ago, only 8% of homes on the market had a rental history, a figure that climbed to 15% by 2021 before experiencing a slight decline prior to this year. The recent surge in the percentage of rental properties being sold may be attributed to a series of tax reforms that have rendered buy-to-let investments less appealing. The looming threat of CGT rising from its current cap of 24% to a staggering 39%—as speculated in the budget announcement scheduled for October 30—could be compelling landlords to divest their holdings sooner rather than later.

Moreover, Rightmove posits that the combination of potential tax hikes and stricter regulations regarding energy performance certificates for rental properties is catalyzing this wave of sales. For those landlords opting to retain their properties, the rental market appears to be thriving, with average rents in Great Britain (excluding London) reaching an unprecedented £1,344 per month for existing tenancies. In London, the average rent has soared to an astonishing £2,694. The Office for National Statistics corroborates this trend, indicating an 8.4% increase in average private rents across the UK over the past year, with specific figures revealing averages of £1,336 in England, £760 in Wales, and £973 in Scotland. Although Northern Ireland's figures were not detailed, it was noted that rents there have surged by 9.5%.

The specter of potential changes to capital gains tax is undeniably influencing the current sales landscape. Investors are understandably concerned that not only could the tax rate increase, but the existing rule that resets the tax liability upon death may also be subject to revision. Given that real estate investment is already one of the least tax-efficient avenues available, any alterations to these regulations could exacerbate the financial burden on landlords holding investment properties. In this intricate dance of market dynamics, one must wonder: is it time for landlords to cash in their chips, or will they double down in the face of uncertainty?