New research has revealed how Covid and rising capital gains tax have persuaded more landlords to hold on to their rented properties than would have otherwise been expected.
Hamptons’ research reveals that 131,900 rental properties were sold during 2020, the lowest figure for seven years, or just 12% of all sales in England and Wales.
But while the ever-changing Covid evictions rules have played a key role in subduing buy-to-let property sales, rising prices mean many landlords face escalating capital gains tax (CGT) bills.
Those who sold up last year in England and Wales realised a pre-tax profit of £82,450 or 42% more than they paid for it after nine years of ownership.
CGT bills for non-corporate landlords vary based on personal circumstances based on value, tax status, when it was bought and whether a landlord has lived in it.
But as a rule of thumb it can be estimated at 20-25% of a property’s sale value.
Top ten gains
The top ten local authorities where landlords made the biggest gains were all in London.
In Kensington and Chelsea, which topped the list, last year the average landlord sold their buy-to-let for £784,980 more than they paid for it ten years ago.
Camden, City of Westminster and Hammersmith & Fulham ranked second, third and fourth on the list, all where the average landlord gain exceeded £500,000.
“Landlord sales have been relatively high over the last few years due to tax and regulatory changes that have reduced the profitability for some investors,” says Aneisha Beveridge, Hamptons’ head of research.
“But given tax relief on mortgage interest will be fully phased out from the 20/21 tax year, it seems as though most landlords who would be hit hardest by these changes have already left the sector.”
She says that, although average capital gains have been shrinking, the house price surge during Covid has reversed this trend.