For most, the answer is staring them in the face, and that is continue to hold the property for the long-term.
We’re all acutely aware that investing in a property has to be done over a 10, 15 or 20 year timeline and not the short-term. Regardless of what outward pressures are placed upon landlords, that still holds true.
So, when I see speculation around the potential reform of capital gains tax (CGT) – specifically whether it will be charged on additional properties and what this might mean for landlords – I am quite comfortable in saying that, for the vast majority, the decision right now will be to pursue the status quo.
This, by the way, is not a new taxation suggestion and – given the current circumstances with the need to grow tax revenues – I am not surprised to see it mooted again.
Whether it gets to the statute book however remains another thing entirely. In terms of impact this is clearly not up there with the potential for CGT to be charged on the sale of owner-occupier properties.
Another suggested tax ‘refinement’ that has again been suggested over the past decade or so.
So, we are not in new territory in terms of its potential, but we may be closer to it becoming law than at any time before.
Impact on landlords
What could it mean? Well, as mentioned, it’s likely to mean that fewer landlords will be inclined to sell their properties if CGT is charged, and it may well mean that older landlords in particular have to think a little bit more carefully around what their exit strategy might be.
For the most part, landlords invest in the private rental sector (PRS) as part of their ongoing pension plan. The closer you get to retirement, the greater the consideration of how to realise the asset.
What we may see, if CGT is charged, is a more structured response to selling those assets – perhaps waiting until their tax affairs change.
Or we may find that owners continue as is, taking the rental income through retirement with the view to passing on those properties as part of any inheritance.
There has been some speculation that the introduction of CGT might hasten the move from owning buy-to-let properties as an individual, into limited companies, in order to avoid the charge.
Certainly, over the past five or six years, a far greater number of purchases have been within limited company structures, but we’ve tended not to see the ‘transfer’ of properties already owned, because of course they are treated as a sale and come with a stamp duty charge and other costs.
Now, however, landlords may have to reconsider whether continuing to hold a property in an individual name is the best option for them.
At the moment, they might feel they can swallow a stamp duty cost in order to do this, but whether they could if CGT was added in, is another thing entirely.
No doubt some advisers may be receiving contact from landlord clients if the move towards a CGT charge on buy-to-let moves ever closer.
However, at present, we cannot say with any certainty just what might be brought forward.
Certainly, give the vast majority of the UK public will never pay CGT, charging it on those deemed to be ‘richer with assets’ is unlikely to be a vote loser.
That said, there is always a vociferous debate – particularly within the Conservative Party – about taxation, its levels and who may or may not be appropriate to pay it.
I suspect this tension will be at play again should this potential measure move more firmly into the spotlight.
However, regardless of what might happen, landlords should always be considering what they do next, particularly if this CGT charge turns out to be the next intervention.