Forty-eight per cent of landlords are worried about a potential increase to Capital Gains Tax (CGT), new research by Barrows and Forrester has found.

The lettings and estate agent suggested that buy-to-let (BTL) landlords are “nervously eying” the planned hike to CGT, which would drastically increase the amount they’d have to pay if they sold their property.

Based on recommendations by the government’s Office of Tax Simplification (OTS), higher rate taxpayers selling BTL or second homes would see their CGT bills soar from 28% to 40%, an increase that would amount to thousands of pounds for many landlords. Basic rate taxpayers would be less affected, but would still see their CGT tax bills rise from 18% to 20%.

The OTS has also called for a major reduction in the Annual Tax Allowance – which currently sits at £12,300 but could be lowered to £2,000 – and recommended for CGT to be more closely aligned to income tax rates, which could climb as high as 45%.

“Buy-to-landlords have been hit hard by the government in the past few years, and now they have something new to worry about,” commented Barrows and Forrester managing director, James Forrester.

“They’ve already had to cope with the 3% stamp duty surcharge, as well as a reduction in mortgage income tax relief, so perhaps landlords are numb to this latest nail in the coffin, although it remains a worry for nearly half.”

Despite property investors indicating they are worried about these changes, the Barrows and Forrester study suggested that most are planning to stay in the market.

Based on responses from 1,100 landlords, the majority (57%) are planning to stick with their investment whatever happens, while 23% are taking a “wait and see” approach. The research found that just 13% are considering selling, while 8% are currently in the process of selling up.

“The changes would likely result in landlords prioritising annual income from their investments rather than capital growth, which could see investors target regions of the country with high rents compared to house prices,” Forrester added.

“It’s positive that a number of landlords plan to stand their ground despite the changes, though we’re still concerned that owners of properties that have experienced substantial capital growth could sell up to make hay while the sun shines if this tax hike is confirmed.

“Landlords will be keeping a close eye on these potential changes to CGT, which could have a sizeable impact on the state of the housing market.”

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