Buy-to-let properties sold to a tenant that has lived there for three years of more should be free from capital gain tax, according to right wing think tank Onward.
It suggested the gain from the tax relief could be split between the landlord and tenant, giving the latter thousands of pounds towards their mortgage deposit.
Average gains for a property were estimated to be £15,000, meaning a buyer could get £7,500.
The policy should be paid for by removing other tax reliefs for buy-to-let investors, including a reduction in the private residence relief period, which is currently at two years, and letting relief, where part of a main home is let out, Onward argued.
The think tank estimated 88,000 households would take up the relief a year, supporting the transition of more around one million into ownership by 2023.
And the policy would also encourage landlords to offer longer tenancy agreements.
Research questions results
Chancellor Philip Hammond is considering the proposals for the Budget later this month, according to the Guardian.
Report authors Will Tanner and Guy Miscampbell said: “One way to achieve greater security of tenure is to introduce longer tenancies by regulation.
“Another, not mutually exclusive, way of achieving a similar aim would be to stack the incentives for landlords in favour of greater security of tenure for private renters.”
David Smith, policy director for the Residential Landlords Association said: “We welcome Onward’s acceptance of the need for more positive taxation in the rented sector which the RLA has long argued for.
“Indeed, last year, we suggested using capital gains tax reliefs in a similar way to that being proposed today.
“Since then, a report by academics at Cambridge University for the RLA has argued that it is not clear whether a reduction in the rates at which capital gains tax is applied would incentivise landlords to sell their properties to sitting tenants.
“A more suitable approach would be a tax relief on rental income for the provision of longer tenancies with a refund on the stamp duty levy for additional properties where a landlord is prepared to sell a property to a sitting tenant.”