Landlords have urged the Chancellor to use his first Budget Statement to announce a shake-up of Capital Gains Tax to support the PRS.

The NRLA proposes that Capital Gains Tax should apply to genuine gains, not gross increases in property values. It says 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.

It also believes 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, which would recognise long-term investment rather than short-term property ‘flipping’.

Safeguards would ensure the relief could not create or increase an allowable capital loss or exceed the inflation actually experienced, it suggests. Genuine increases in property values would remain subject to Capital Gains Tax. The plans would prevent inflation being taxed and preserve the purchasing - or investing - power of money released by the sale of a property.

Increase

The NRLA points out 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.

Chief executive Ben Beadle says it’s 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,” adds Beadle.

Devalues

“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.”

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