One of the many proposals that the Chancellor is considering for inclusion in the Autumn Budget is intended to make it easier for young people to afford to buy a home. It is a new type of help-to-buy scheme that gives landlords (and possibly non resident landlords) exemption from capital gains tax if they sell their property to a sitting tenant.
What problem is this solving?
This could solve two related problems: the falling percentage of young homeowners and encouraging landlords to sell their rental properties.
Young homeowners
It is estimated that 40% of young adults in the England are unable to afford to get on the property ladder. The Institute for Fiscal Studies’ (IFS) research compiled stark statistics. In 1996, 90% of 25-24 year olds could purchase the cheapest property where they lived.
By 2018, this has dropped to 60% across England and only 35% in London. The idea of affordability in this context is based on having a 10% deposit and being able to borrow 4.5 times total salary.
It is widely accepted that this is due to a combination of factors including; high property prices, depressed wages and high rents making saving for a deposit unaffordable.
Landlords selling rental properties
Landlords have to pay 28% capital gains tax on all profits made from selling their rental properties. Without considering any other factors, this is a massive disincentive to sell. This keeps housing stock tied up in the rental market and not available for the first time buyer.
What are the details of the proposal?
This proposal was generated by Onwards, a think tank, and suggests that landlords can get capital gains tax relief if they sell their property to a tenant that has been in the property for a minimum of three years. They then split the substantial tax relief amount, 50-50, with the tenant. The tenant has some money to put towards their home and the landlord avoids a hefty tax bill. Seems like a win-win for landlord and prospective homeowner. But what about the Treasury?
How much will the Treasury lose on this tax relief?
Any decrease in tax payments are of concern. The proposal includes a way to recoup the £1.3bn cost of the new capital gains tax relief. It suggests that other buy-to-let landlord tax reliefs are cut in order to compensate.
Will it be worth it to the individual?
The proposal does give estimated figures for the new capital gains tax relief. The average amount of capital gains tax relief is predicted to be £15,000; £7,500 for the landlord, £7,500 for the sitting tenant-come-new-homeowner. For the London area, this amount is £19,000.
In terms of volume, the proposal suggests that every year 88,000 families could benefit from this new tax relief. Scaled up, the numbers estimate that by 2023 over one million renters could own their home.
We will have to wait and see if this is included in the Chancellor’s final Autumn Budget.
