NRLA calls for Capital Gains Tax reform to boost rental housing supply

NRLA calls for Capital Gains Tax reform to boost rental housing supply

The National Residential Landlords Association urges fundamental Capital Gains Tax reforms ahead of the Budget to support long-term investment in rental properties and address the shortage of homes to rent.

The National Residential Landlords Association (NRLA) has called on the Chancellor to introduce comprehensive reforms to Capital Gains Tax (CGT) in the upcoming Budget. The association argues that the current tax system discourages investment in rental housing by taxing inflation-driven price increases as if they were genuine gains. This, it says, undermines landlords’ ability and willingness to provide long-term rental accommodation, exacerbating the shortage of homes available to rent.

According to the NRLA, every rental home currently attracts an average of 10 enquiries, double the pre-pandemic level, highlighting the acute demand for rental properties. The shortage is particularly detrimental to younger people, limiting their access to employment and education opportunities. The NRLA’s analysis found that between 2015 and 2024, only one-fifth of the increase in house prices represented real gains after inflation, yet the entire appreciation (except certain capital costs) is taxed as profit on disposal.

NRLA’s proposals for a fairer Capital Gains Tax system

The NRLA proposes two main reforms to make CGT fairer and more supportive of long-term rental investment. First, it recommends that CGT should be charged only on genuine gains, not on nominal increases caused by inflation. This would involve adjusting the acquisition price and qualifying capital expenditure by inflation before calculating the taxable gain. Such an approach would preserve the real value of invested capital and avoid penalising landlords for inflationary effects beyond their control.

Second, the NRLA suggests introducing relief that recognises the length of time a property is held and used productively as rental accommodation. Properties sold after short-term speculative holding would not qualify for relief, whereas long-term investors providing homes would benefit. This would discourage property flipping and reward landlords committed to maintaining rental supply over time.

Safeguards would be needed to prevent abuse, ensuring relief does not create or increase allowable capital losses or exceed actual inflation experienced. Genuine increases in property values would remain subject to CGT, preserving the tax’s role in capturing real profits.

Context of the rental housing supply crisis and tax policy

The UK rental sector faces ongoing challenges with supply failing to meet demand, particularly in urban areas and among younger demographics. High demand and limited availability have pushed rents up, intensifying affordability issues. Tax policy plays a significant role in shaping landlord behaviour and investment decisions. The current CGT framework, by taxing nominal gains including inflation, reduces the attractiveness of buy-to-let investments compared to other asset classes.

Landlords must consider not only income tax and stamp duty but also CGT implications when managing portfolios. The NRLA’s call for reform reflects wider concerns that the tax system should encourage the provision of affordable rental housing rather than deter it. The association’s proposals align with longstanding industry arguments for indexing CGT calculations to inflation and rewarding long-term holding to stabilise the rental market.

Practical implications for landlords and letting agents

If CGT reform along the lines proposed by the NRLA were introduced, landlords could see a reduction in their tax liabilities on property disposals, particularly those holding properties over extended periods. This would improve the financial viability of buy-to-let investments and potentially encourage more landlords to retain properties as rental homes rather than selling to realise gains.

Letting agents might experience increased landlord confidence and portfolio stability, reducing turnover and the associated costs of re-letting. However, until any reform is legislated and detailed, landlords must continue to manage CGT risks under current rules, including careful record-keeping of acquisition costs and capital improvements.

Landlords with plans to sell properties should monitor Budget announcements closely and seek professional advice on CGT treatment. The NRLA’s proposals, if adopted, could change the timing and strategy of disposals, favouring longer-term holding over short-term speculation.

Uncertainties and what to watch for in upcoming Budget

The NRLA’s call for CGT reform is timely but not guaranteed to be adopted in full or at all. The Chancellor’s Budget decisions will reflect broader fiscal priorities and political considerations. Details such as the method of inflation adjustment, qualifying periods for relief, and safeguards against abuse remain to be defined.

Landlords should watch for official government consultations or draft legislation following the Budget to understand how any changes would apply in practice. The impact on other tax areas, such as income tax on rental profits and stamp duty, may also influence overall investment decisions.

In the meantime, landlords should continue to maintain thorough records of property costs and improvements to support accurate CGT calculations and prepare for any future changes.

Landlord considerations ahead of potential CGT reform

• Review purchase and improvement records to ensure accurate cost bases for CGT purposes.
• Consider the holding period of properties and potential tax benefits of longer-term investment versus short-term sales.
• Stay informed about Budget developments and government consultations on tax reform.
• Seek specialist tax advice to plan disposals and investment strategies under current and potential future rules.
• Monitor rental market conditions and tenant demand to align portfolio management with supply needs.

Supporting landlords through tax and compliance changes

The Landlord Association (TLA) membership offers access to detailed compliance resources and practical information to help landlords manage changing tax and regulatory obligations. Our developing ORBIT platform, currently in BETA testing, aims to assist landlords and letting agents in organising property portfolios, managing key documents, and recording important actions such as repairs, inspections and communications. This can support accurate record-keeping essential for tax calculations and compliance.

Through TLA membership, landlords can access up-to-date guidance on tax developments, including Capital Gains Tax, and benefit from resources designed to prepare portfolios for evolving requirements. ORBIT’s property management AI assistant, also in testing, will help keep track of compliance deadlines and documentation, reducing administrative burdens.

Explore TLA membership and learn more about ORBIT BETA access to stay informed and organised as tax reforms and rental sector regulations develop.

The Budget’s treatment of Capital Gains Tax will be a key issue for landlords and letting agents to monitor in the coming weeks. While reform proposals aim to support long-term rental investment, the details and timing remain uncertain. Staying informed and prepared will be essential for managing portfolios effectively in this changing environment.

Sources: Landlord Today