Capital Gains threat to Rental Market

A lack of available properties and the proposed increase to the rate of Capital Gains Tax presents a grave threat to the Private Rental Sector (PRS), according to Jill Elkington, Midlands spokesperson for The Association of Residential Lettings Agents (ARLA) and residential letting manager for Hodgson Elkington, chartered surveyors.

“The PRS currently represents more than three million homes in this country, and is a crucial component in offsetting the shortage of homes being built to house the growing population here in the East Midlands. I fear that the new CGT policy could create a shortage in rental property supply as investors look to sell off their portfolios and also deter future investors from entering the sector.

"Our latest research shows that rent levels are on the rise, indicating a potential market stabilisation, but also highlighting the dearth of available rental properties," said Jill Elkington.

"With the anticipated increase in Capital Gains Tax rates for non-business assets, we could potentially see a fire sale situation arise in the buy-to-let market with investors offloading properties. Consequently, the number of available rentals will greatly diminish and the fragile market recovery jeopardised.

"There are some potential solutions, one of which is that landlords should be treated as exempt businesses. For example, could the new Government propose taper relief, or rollover relief into the CGT changes? We need clarity before this new Government risks damaging the confidence of the recovering property market," added Jill Elkington.

ARLA's latest research reveals that almost a third of ARLA members (30.8%) felt that achievable rent levels had increased in the last six months. This compares with just 12.5% of members at the end of 2009.

"As the new government plans its first steps, it is vital that there be a concerted focus on the PRS. For months we have emphasised that specific measures are needed to encourage the creation and improvement of rental accommodation - to no avail.

"Now, we appeal to the new coalition to implement solutions that will ensure the long-term availability of enough affordable rented accommodation. This includes treating landlords as businesses within the fiscal regime. This is the only way to help ease the housing deficit."

Other measures ARLA is calling for include:
• Removal of VAT on the purchase of materials and labour to improve older property.
• Introduction of capital allowances for landlords improving older housing stock.
• Increase the Landlords Energy Saving Allowance (LESA) to include the installation of central heating systems.

The research was taken from the Q1 2010 ARLA Review and Index, available at: http://www.arla.co.uk/q1ri