Government facing calls to give private landlords tax break if they sell homes to tenants

Tax cut would give 88,000 tenants a year an average of £7,500 towards buying a home, think-tank says

Landlords should be given a major tax cut if they agree to sell their property to tenants, a new report has said.

The proposals would see landlords exempted from capital gains tax if they sell a property to renters who have been living there for at least three years.

Philip Hammond, the chancellor, is facing calls to include the policy in this month's Budget.

Owners selling rental homes currently have to pay a 28 per cent rate of capital gains tax on the profits of the sale, which is seen as disincentive to sell.

The proposals have been drawn up by new right-wing think-tank Onward, founded by Theresa May's former deputy policy chief, Will Tanner.

The change is designed to help free up properties for first-time buyers, while the three-year threshold could also incentivise landlords to offer longer tenancies.

Onward said the estimated £1.3bn cost of the policy could be funded by scrapping other tax breaks given to buy-to-let investors.

The proceeds of the tax break would be split between the landlord and the tenant, with the latter being able to use it as part of a mortgage deposit.

Onward said the tax saving per property would be around £15,000, meaning the tenant would receive £7,500. This could rise to as much as £19,500 in London.

Estimates suggest 88,000 households would benefit from the policy each year, meaning a million people could be helped onto the housing ladder in five years.

Mr Tanner told BBC Radio 4 Today: "What we're suggesting is that landlords and tenants should both gain.

"More landlords should be encouraged to sell to their tenants.

"Most people in this country do want to own their own home...but at the moment they're being prevented from doing that."

The proposal also has the advantage that it would increase the number of properties available for sale, whereas existing government schemes, such as Help to Buy, have been criticised for driving up demand without increasing supply.

However, calls for buy-to-let investors to be given further tax cuts are likely to prove controversial, with tenants' groups likely to suggest landlords have already benefited enough from the property boom.

Private renters are seen as increasingly important to the Tories' chances of winning the next election.

The number of people renting privately has doubled in the last 20 years, to 4.7 million households - more than 20 per cent of all homes.

Polling suggests the Conservatives trail Labour by 23 points among private renters, including in many of the country's most marginal constituencies.

It comes as new research by the Institute for Fiscal Studies (IFS) laid bare the increasing unaffordability of home ownership for young people.

The think-tank found that just 60 per cent of 25-34-year-olds could now afford to buy the cheapest home in their area - down from 90 per cent in 2006.

The Treasury did not respond to requests for comment.