It doesn’t happen often these days. But there might be something in the next Budget (on 29 October) that MoneyWeek readers will like. Rumour has it that chancellor Philip Hammond will introduce a scheme whereby landlords who sell up to tenants who have been with them for more than three years, get a capital gains tax (CGT) break. The details are unclear, but the general idea is that no CGT ends up with the Treasury, with the benefit being shared 50/50 between the tenant and the owner. The owner gets 50% relief and the tenant gets the other 50% that would have been paid in CGT to put towards their deposit or mortgage – or something like that at least.
There will be endless complications (not all properties come with capital gains for one) and the fiddle will eventually be regretted. But given that CGT on residential property is 28% (it is 20% for everything else) and that many early buy-to-let investors will have whopping capital gains, the idea of a break should get a lot of greed genes going.
That’s no bad thing. There are times when you should watch the signals from the government very carefully. This is one of those times. Look at the burdens put on buy-to-letters over the last few years: extra stamp duty on second homes; the change to tax relief treatment of buy-to-let mortgage interest, and wear and tear; the discriminatory rate of CGT; the new licensing laws for HMOs (homes in multiple occupation); and the new energy efficiency regulations. They have all been telling you to get out of the market.
The political environment is fast-shifting away from landlords. But it has a lot further still to shift: complacent English landlords should look to the new rights just given to tenants in Scotland (which add up to much more security of tenure for the tenant and tighter rules on rent rises) if they want a hint of how their own troubles might look. The CGT relief, if it is offered, might be close to the last chance you have to get out at a time of your own choosing (much more of a shift towards tenants, and selling might get hard) and with gains still to protect.
The same relief is unlikely to be offered on any of your other assets. For many readers that isn’t a problem – the sensible build up assets inside individual savings accounts (Isa) and pension wrappers, so never have to think of the tax implications of their investment performance. But those who do have CGT liabilities should bear in mind that some of those gains will be due to unsustainable rises in the valuations of equities and the prices of bonds over the last decade. Odds are, you’ll be better off selling and paying the tax rather than waiting to see just how unsustainable those rises really are. In this week’s magazine we have more on how – and how soon – the end of the super-low interest era is going to give us the answer to that very question. We also have some ideas on how to reinvest your gains (Japan and UK software firms perhaps).