Chancellor Phillip Hammond is considering a new tax break to reward landlords selling buy to let homes to sitting tenants for his Budget 2018.
A think-tank proposes landlords pay no capital gains tax on selling a private rented home, but in return splits the money saved with the tenant.
The tenant then puts the cash windfall down as a deposit on the home and takes out a mortgage to finance the rest of the purchase.
The idea comes from ‘ideas factory’ Onward, a right-wing think-tank.
To balance out the cost to the Treasury, landlords are likely to have to forego other tax breaks, such as a limit on private residence relief down from 18 months to six months and lettings relief, which adds up to a £40,000 CGT deduction.
Reward for good landlords
Landlords would qualify for these CGT reliefs if they had previously lived in the rental property.
One of the authors of the report Make A House A Home, Will Tanner, is a former Tory policy adviser.
“Today’s renters are older, more likely to be in rented property for longer and more likely to have children than any generation before them,” he said.
“These proposals would reward landlords who offer long-term tenancies and give today’s generation of private renters an opportunity for ownership. It is time to give private renters the chance to make their house their home.”
Onward reckons 88,000 tenants could take up the offer each year, which would see almost 450,000 renters become home owners over five years.
The average gain in value for a buy to let home is estimated at £15,000, which would provide the landlord and tenant with £7,500 each instead of the money going to the Treasury.
The tax exemption would depend where the property is located, as homes in London would give a landlord and tenant almost £20,000 each as homes are more expensive in the capital.
Buy to let trade organisation the Residential Landlords Association welcomed the idea with reservations, pointing out research found CGT incentives may not be enough to make landlords sell property.
“A report by academics at Cambridge University for the RLA has argued that it is not clear whether a reduction in the rates at which CGT is applied would incentivise landlords to sell their properties to sitting tenants,” said RLA policy director David Smith.
“A more suitable approach would be a tax relief on rental income for the provision of longer tenancies with a refund on the stamp duty levy for additional properties where a landlord is prepared to sell a property to a sitting tenant.”