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UK Landlords Face a Capital Gains Tax Bill of over £4.1 Billion

27 February 2007: Data analysis by Landlord Mortgages, the UK’s largest specialist buy-to-let mortgage broker, has revealed that UK landlords are facing a capital gains tax (CGT) bill of over £4.1 billion (average £48,600 each)*.

Huge house price increases have caused this significant problem but Lee Grandin, Managing Director of Landlord Mortgages, urges the government to consider a potential solution:

“Huge house price increases have been a boon for many ordinary homeowners but they also pose a problem for buy-to-let investors. If a property shows considerable capital growth, landlords will generally remortgage to release some of the equity in order to expand their property portfolio. While this allows them to spread the risk amongst a selection of residential investments, it does mean that if they choose to sell the property, they need to ‘reclaim’ some of this equity to pay their CGT Bill.

“Through careful financial management, a significant CGT bill can be reduced but no matter how well you plan these costs cannot be removed altogether. With the average landlord facing a CGT bill of £48,600 and the industry as a whole needing to find £4.1 billion, something definitely needs to be done.

“The Government has plans to significantly increase the UK’s housing stock over the next ten years to accommodate the increased demand for owner occupied homes. Therefore, we propose that ‘tax breaks’ are offered to landlords who sell their rental properties to first-time buyers or key workers. The ‘relief’ could come in several forms – either a reduction in the overall amount paid or an increase in the period over which the tax can be paid. There are many possibilities.

“CGT is a huge problem in the buy-to-let sector and we call upon the Government and other interested parties to work together to ease this burden on Landlords.”

* = The number of Buy-to-let Mortgages outstanding at the end of each period from 1998 to 2006 (Source: CML Data) was reviewed and natural attrition rates (Source: Landlord Mortgages) were applied to determine the number of B2L properties held continuously over the period. The average house price and growth was computed (Source: Halifax House Price Index) before the basic CGT exemption removed (Source: HMRS) and the final figures calculated.