Ahead of the Budget, the landlord body said demand for rental properties continues to outstrip supply.
As a result of a shortage in rental supply, landlords have subsequently seen a rise in rental yields.
The NRLA cited Rightmove data showing that each rental home currently receives an average of 10 enquiries, around double pre-pandemic levels.
It argued that the current CGT system discourages long-term investment, as it taxes gains driven by inflation in the same way as genuine growth in property values.
Research by the organisation found that between 2015 and 2024, only around one-fifth of the increase in house prices represented real-terms gains, with the remaining growth attributed to inflation. However, landlords were taxed on the full increase in value when a property is sold, less certain capital costs.
Your First Home: confidence to build
Sponsored by Halifax Intermediaries
Adjust qualifying capital expenditure
As such, the NRLA called for acquisition costs and qualifying capital expenditure to be adjusted for inflation before CGT is calculated.
It also asked for reliefs to reflect the length of time a property has been held and used to provide rental accommodation. However, it said no relief should be available for short-term speculative purchases to avoid ‘flipping’ of property.
According to the NRLA, the aim is to ensure tax is levied on genuine gains rather than inflation-driven increases in property values. Consequently, it would preserve the purchasing power of proceeds from property sales.
Long-term investment discouraged
Ben Beadle, chief executive of the NRLA, said the current system does not support long-term investment in the rental sector.
“All regions of this country desperately need more homes to rent, yet our tax system fails to encourage landlords to make long-term investments to provide them,” he said.
Beadle argued that applying CGT to inflationary increases in property values was unfair, adding: “That’s not a real gain, and it shouldn’t be treated as one.”
He warned that taxing inflation reduces the value of returns from property investment and claimed that, without reform, some investors may find holding cash more attractive than investing in rental housing.
Beadle continued: “The Chancellor has an opportunity to put this right. A fairer capital gains tax system that recognises inflation and rewards long-term investment would help rebuild confidence in the sector and support the supply of rental homes.”
