London landlords are selling their buy-to-let properties at unprecedented rates, driven by looming tax increases proposed by the U.K. Labour government. According to data released by property portal Rightmove on Thursday, nearly 29% of homes currently on the market in the capital were previously rental properties. This marks a significant rise from the five-year average of 14% and an increase from 8% in 2010.
This surge in property sales reflects a broader trend across the U.K., where 18% of all listings were formerly rented out, Rightmove reported. Although the data does not yet indicate a “mass exodus” of landlords, it suggests a gradual decline in the attractiveness of the buy-to-let sector. Analysts attribute the heightened sales to anticipated tax hikes outlined in Finance Minister Rachel Reeves’ forthcoming Autumn Statement, scheduled for October 30.
The government is expected to introduce measures such as an increase in Capital Gains Tax (CGT). Currently, CGT for buy-to-let landlords is set at a flat rate of 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. There is speculation that the Labour government might equalize CGT rates with income tax levels, potentially increasing the tax burden on landlords significantly.
Prime Minister Keir Starmer has indicated that the October budget will be “painful,” as the new administration grapples with a £22 billion ($29 billion) fiscal deficit uncovered upon taking office in July. Reeves has declined to confirm specifics of the tax changes but has acknowledged the need for fiscal adjustments.
Marc von Grundherr, Director of Benham and Reeves, expressed concern that equalizing CGT could result in a substantial tax increase for landlords exiting the sector. He highlighted that this potential change, coupled with recent legislative shifts and reduced profitability, could further strain the rental market.
The buy-to-let market, once a prominent avenue for wealth accumulation, has faced mounting pressures, including the removal of tax reliefs and the recent cost-of-living crisis. The stock of investment properties has dropped by 8.7% over the past three years, according to Savills.
Despite these challenges, recent easing of borrowing costs has spurred a 14% increase in new property listings compared to 2023. However, experts like Tim Bannister of Rightmove caution that a further crackdown on buy-to-let investors could exacerbate affordability issues in the rental sector, impacting tenants adversely.
