Capital Gains Tax (CGT) is a tax charged on the profits made when an asset is ‘disposed of’. For landlords this normally means that they face a significant bill whenever they sell part of their portfolio which has appreciated in value.

CGT is not payable on the sale of an individual’s main residence, provided that they are entitled to full Private Residence Relief. However sale of any other property, land or interest in land - like rental property - where a gain is made will generally be chargeable. 

Since 2007, there have been a number of changes to the way in which CGT is charged, including the removal of many reliefs  previously accessible to landlords.The current rate applicable to qualifying gains made on the sale of property is 28 percent, and is payable irrespective of whether a landlord intends to reinvest these gains.

This is not the case for other 'businesses' which may take advantage of roll-over relief if they intend to reinvest their gains. Upon disposal of many business assets , businesses are able to claim ‘roll-over’ relief against CGT provided that the gain is reinvested in the business.

For instance, a company may sell land or buildings used for the purpose of their trade and claim tax relief against any profit made on the sale provided that the gain is reinvested in the business. Hence encouraging reinvestment and the development of the company. Such relief also allows a degree of flexibility, allowing businesses to target their resources in the most appropriate manner, as needed.

Landlords, when disposing of any part of their portfolio, may not take advantage such ‘roll-over’ relief in respect of residential property by virtue of the Taxation of Chargeable Gains Act 1992. This means that private-residential landlords are faced with a considerable barrier to disposing of property, which represents their most important assets in connection with their lettings business. This hinders continued investment in their business, reducing the flexibility of the PRS and the ability of landlords to adapt to changing markets. It also means that landlords are less able to recover from potentially poor investments and provide housing where it is most needed.

It is the NLA’s belief that landlords selling property and reinvesting the funds released should be able to do so without being presented with a significant CGT bill.

Private-residential landlords should have access to the same level of ‘roll-over’ relief available to other businesses and CGT should be charged only on gains released from a business as profit. 

It is also crucial to differentiate between assets held on a long-term basis as an investment or aspect of business and those intended for short-term speculation. HM Treasury must do more to reduce the burden on landlords by introducing a mechanism which reduced a landlord's exposure to CGT relative to the time which they have owned their property. This could be achieved by the reintroduction of taper relief or the use of a diminishing CGT rate.

 

 

 

Comments

Submitted by 132636 on 6 September 2014 - 3:34pm

Totally agree with previous comments on the unfair retrospective implications of this tax. When we purchased our first rental properties,16 years ago, CGT was not applicable to such assests held longer than 10 years. At a stroke, a perfectly legal long-term investment which, when purchased, would have been free of CGT on disposal, became subject to tax at 28% of current value. Surely the reintroduction of taper relief is something which NLA should be pursuing much more vigourously, not least because it would encourage longer-term investment in rental properties and (according to an article in the July 2014 edition of NLA UK Landlord magazine)also make UK more comparable with France - exemption at 15 years - and Germany - exemption at 10 years - in this respect. The current system does nothing to discourage short term speculation, which is detrimental to providing stable HOMES for private renters. These type of assets are quite different to other financial investments in this respect.

Submitted by 9520 on 28 February 2014 - 11:11am

Recent comments from the NLA team state that the Chancellor has missed a trick by failing to extend the business asset roll - over tax relief to buy to let landlords and hopefully the NLA will continue to press the Chancellor to amend this.
However, there have not been any recent comments from the NLA regarding lobbying Parliament and the Chancellor to re introduce Taper relief for long term property investors. The removal of Taper relief did not just affect our industry from the date it was removed but it has created punitive RETROSPECTIVE taxation to the many landlords who purchased property 30 or 40 years ago as a long term investment with a view to purchasing pensions with the proceeds from the sale of their properties at retirement age. Their pension pot will now be taxed at 28% which is a huge money grab from the Government against long term investment. I believe that the NLA needs to make a much stronger case for its members against this tax otherwise the Chancellor will succeed in getting away with this injustice.

Submitted by 84484 on 19 April 2013 - 3:46pm

Non U.K. residents are exempt from Capital Gains Tax on the Gains they make from the disposal of properties in the U.K.
The same applies to foreign companies owning rental properties in the U.K.

This gives an unfair advantage to foreign Landlords.

The Government can perhaps finance the CGT Roll- over relief and the CGT inflation indexation for all Landlords by making the foreign Landlords liable to CGT on the capital gains realised in the U.K.
After all, the foreign Landlords have to pay CGT on their world wide capital gains to the government of their country. So, whatever CGT they pay in the U.K., it will be deducted from their global liability.

Considering the fact that most of the foreign landlords operate in Central London where the property prices are high, the potential CGT is very high.

For example, it does not make any sense for an E. U. resident not to pay the CGT on CGains arising in the U.K. to the U.K. government, but to pay it into his own government. Whereas a UK resident has to pay CGT in the EU country where the gain arose e.g. he pays CGT from the sale of his holiday home in Spain to the spanish government.

Submitted by 2426 on 28 January 2012 - 11:09am

As a retired HM Inspector of Taxes I could not believe that Gordon Brown got away with removing indexation from the Capital Gains Tax regime. I cannot remember a time when there was no provision to provide relief in respect of the increase in asset valuation that comes simply from inflation. In addition the rental property market now is vastly different from when rules governing Schedule A (income from property rules) were formed. Then it was simply seen as unearned income with very little involvement from the landlord. Matters are very different now and a lot of property portfolios are run very much on business lines with little distinction from other businesses. In fact many landlords have invested in property as part of their pension portfolio. Whilst I hope the Chancellor will recognise this I think that in the present economic climate this is unlikely. It is a shame because I think successive governments have, whilst relying on the private rented sector to meet demand, systematically eroded the benefits of being a landlord too such an extent that landlords must be asking themselves if it is worthwhile to continue.

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