Treasury weighing up tax break for landlords who sell to young adults

Lamont Pridmore - Accountants

The chancellor, Phillip Hammond is considering introducing a tax break in this month’s budget rewarding landlords who sell their properties to sitting tenants, after it was revealed that 40 per cent of young adults are unable to buy a home.

The Treasury is contemplating a new Help-to-Buy proposal whereby landlords would be exempt from paying capital gains tax when selling up to tenants who had been living in a property for at least three years.

The proposal has been drawn up by the think-tank Onward, which suggests the £1.3 billion-a-year cost of the policy could be covered by reducing other tax perks enjoyed by buy-to-let investors.

Under the current rules, investors who sell a rental property are liable to pay capital gains tax at 28 per cent on all the profit they make, which is proving to be a deterrent to selling up.

The new plan proposes that the landlord would be eligible for tax relief, with the windfall split equally with the tenant, who could use it as part of their mortgage deposit.

They are estimating that the average gain per property would be around about £15,000, which means a first-time buyer could benefit by £7,500, and as the gain is affected by property prices and their historical growth a London tenant could receive around £19,500 under the scheme.

Around 88,000 households could take up the relief each year, meaning nearly half a million households could benefit over five years and over a million people would move from the private rented sector into home-ownership by 2023.

The idea came following research by the Institute for Fiscal Studies (IFS) which revealed the collapse in the number of young Britons who could afford their own homes. In 1996 more than 90 per cent of 25-34-year-olds could afford the cheapest house in their area however that figure is now down to around 60 per cent.

IFS research economist Polly Simpson said: “Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10 per cent deposit.

“Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average priced one.”