Buy-to-let landlords warned over CGT liability in downsizing

Recent tax changes and other government moves designed to cool the buy-to-let market are starting to have an effect, with an increase in the number of landlords with significant property portfolios wishing to downsize, but concerns around potential capital gains tax (CGT) liabilities are increasing, law firm Irwin Mitchell Private Wealth reports

In recent months landlords have seen more stringent mortgage lending criteria announced (particularly for those with four or more properties) and an additional 3% stamp duty land tax (SDLT) charge where buyers already have a primary residence.

However Jeremy Raj, partner, Irwin Mitchell Private Wealth warns that disposing of buy-to-let portfolios will not be as straightforward as some landlords might think. The firm cautions that those with larger portfolios may find themselves with a CGT bill due to a move by HMRC to crack down on landlords who do not declare all sources of income.

‘We’ve certainly seen an increase in enquires from landlords worried about the future market.

‘However, the CGT liability that will crystallise on each property sale must be factored in when weighing up whether it is best for landlords to divest of their property portfolio,’ Raj said.

A report from estate agent Savills earlier this month found that the amount of rent paid to private landlords in the UK is now double the amount of mortgage interest paid to banks by homeowners.

Raj points out that analysis shows that while homeowners have enjoyed low interest rates, renters have seen average rental prices rise year on year: for London, the average rent rose by 42% in the last five years.

‘Out of the total amount of £54bn paid over a 12-month period ending in June 2017, £24m was paid by younger people. Clearly the government’s thinking is that the changes in buy-to-let regulations and rules will begin to help younger generations get on the property ladder.

‘If the government really wants to help young people on to the property ladder, it needs to combine the recent disincentives in the buy-to-let sphere with fulfilling its promises to get more housing built,’ Raj said.

Reports Pat Sweet

Average: 5 (1 vote)


Fair enough! Although investors should be willing to pay taxes when they make profits from capital appreciation on properties which they look to crystallise by selling the asset. It is also worth highlighting the tax-free CGT allowance which can be doubled by holding assets in joint names. Not declaring income is a different point altogether - that's evasion which should be dealt with separately and punitively!