Landlords 'considering selling up over capital gains tax hike'

A quarter of landlords claim they are considering quitting the buy-to-let sector ahead of the new Government's planned hike in capital gains tax, research showed today.

Around 26% of landlords said they were thinking about selling their properties before the tax is increased from its current rate of 18%, according to lettings agency network LSL Property Services.

A further 71% of investment landlords said a rise in the tax would make them reconsider making future investments in property.

Nine out of 10 landlords also said they opposed plans to hike capital gains tax.

The Government signalled its intention to raise capital gains tax in its coalition agreement, when it said it would change the rate paid on non-business capital gains to a level similar to those applied to income.

This has been interpreted as meaning the tax will be increased from its current rate of 18% to 40% or even 50%.

But the plans, which are expected to be included in this month's emergency Budget, have sparked opposition from right-wing Conservative MPs, with ex-ministers David Davis and John Redwood leading criticism that it could hit entrepreneurs and savers.

The LSL research found that although landlords make returns from both renting out their property and house price rises, they tend to place greater importance on the capital gains, which will be hit by the tax.

It said that while 30% of investors placed equal importance on rental income and house price rises, 36% considered increases in the value of their property to be the most important aspect of their investment, a quarter of whom said they judged their investment on capital gains alone.

Simon Embley, chief executive of LSL Property Services, said: "Foisting a tax hike on property investors will drive many from the housing market - at a time when its recovery is still perilously fragile.

"If potential landlords are discouraged from investing, we will see a large proportion of the demand for house purchase disappear and house prices may fall."

The group warned that people who had invested in property instead of a pension would be worst hit, as they were most likely to have held properties for long periods.

It said someone who had bought a property in 1988 would have seen its price rise from an average of £44,880 to £168,200, meaning they would face a tax bill of £45,288 when they sold it if capital gains tax had been increased to 40%.

Among landlords who said they were committed to remaining in the private rented sector, 41% said they could not sell their properties before the higher rate of the tax was introduced because it was their pension plan.

The group called for capital gains tax to be overhauled, with the taper system reintroduced, so that people who hold assets over the long-term do not pay as much tax as those who make quick gains.

* LSL questioned 860 landlords and property investors during May.