Capital Gains Tax ‘a farce’

Sweeping reforms are need if to the Capital Gains Tax system to help tackle the rental housing supply crisis. 

We have issued the warning ahead of the Autumn Budget in two weeks’ time, as latest data shows there are currently 10 tenants enquiring about every home available to let – double the pre-pandemic average.

We are arguing the shortage of rental homes is making it harder for people to access work and educational opportunities, in particular younger people.

Ahead of the Budget we have told the Government these supply issues are being exacerbated by a tax system that discourages investment because it cannot distinguish between genuine gains and price increases resulting from inflation.

We have found that between 2015 and 2024 just one-fifth of the increase in house prices represented real-terms gains, with the remainder attributable to inflation.

Despite this, all price appreciation – with the exception of certain capital costs – is treated as if it were profit and taxed when a property is sold.

Budget calls

We are now calling on John Healey to use his first Budget Statement as Chancellor to announce fundamental reforms to Capital Gains Tax to support long-term investment in rental housing and help tackle the shortage of homes to rent.

To create a fairer system that supports the long-term provision of rental housing, we propose:

• Taxing of gains, not inflation: We believe Capital Gains Tax should apply to genuine gains, not gross increases in property values. The acquisition price of a property, and any qualifying capital expenditure should be adjusted for inflation before calculating the true real terms gain on disposal of a property.
• Relief for long-term rentals: The relief available must recognise the time a property is held and productively used to provide accommodation. Where a property is bought and sold speculatively over a short-term no relief would apply. This would recognise long-term investment rather than short-term property ‘flipping’.

Under these proposals safeguards would ensure the relief could not create or increase an allowable capital loss or exceed the inflation actually experienced. Genuine increases in property values would remain subject to Capital Gains Tax.

The purpose of the reform is to prevent inflation being taxed, and to preserve the purchasing (or investing) power of money released by the sale of a property.

Budget an opportunity to put things right

Our chief executive Ben Beadle said: “All regions of this country desperately need more homes to rent, yet our tax system fails to encourage landlords to make long-term investments to provide them.

“It is absurd that investors face Capital Gains Tax on increases in property prices that are simply the result of inflation. That's not a real gain, and it shouldn't be treated as one.

“Taxing inflation devalues the worth of an investment, and any potential return. If nothing changes potential investors will be better off leaving cash in the bank, where they face none of the risks or difficulties inherent with providing homes.

“The Chancellor has an opportunity to put this right. A fairer Capital Gains Tax system that recognises inflation and rewards long-term investment would help rebuild confidence in the sector and support the supply of rental homes.

“If we want renters to have more choice and affordable places to live, we need a tax system that encourages investment rather than undermining it.”

More information

The NRLA’s full Budget submission can be accessed here.