Is the UK Rental Market Facing Radical Changes?

The British real estate landscape may be on the brink of a turning point if plans to adjust the Capital Gains Tax (CGT) are implemented. According to a recent study, the UK rental market could lose one million homes if the CGT reform considered by Chancellor Rachel Reeves becomes a reality. Currently, CGT on profits from property sales is capped at 24 percent. However, if alignment with income tax occurs, high-earning landlords in particular face a tax burden of 45 percent on their profits. Capital Economics warns in a report that this could lead to a massive exit of landlords from the market. Landlords are already under pressure: increased costs and mortgage rates, along with political decisions like the withdrawal of mortgage interest relief and the 10 percent wear and tear allowance, have taken their toll. All this is happening at a time when rents have risen by 41.5 percent over the last decade, yet landlords' profits are dwindling. The new tenant reform law, prohibiting Section 21 "no-fault" evictions, makes it harder for landlords to take action when tenant issues arise, bringing numerous landlords to the brink of existential crisis. UK Finance reports a tripling of repossessed properties within three years, while the number of mortgages with significant arrears has also risen substantially. The discussion about increasing Capital Gains Tax has reignited the debate over the profitability and future of the rental industry in the UK. The threatened tax reforms risk further tipping the balance of an already strained market.