Cut to CGT too small to encourage selling

Jo Eccles, a prominent agent is advising landlord clients, regarding the impact of Capital Gains Tax (CGT) cuts announced in the Budget, as well as the broader dynamics of the London property market:

  1. Limited Impact of CGT Reduction: Eccles suggests that the CGT reduction announced in the Budget is unlikely to significantly influence landlords’ decision-making. This is because many landlords’ properties, particularly those purchased in the past decade since the 2014 peak, have not appreciated in value. Consequently, there are no capital gains to benefit from the tax break.
  2. Drivers for Landlord Sales: The main factors driving landlords to sell are higher mortgage interest rates and the inability to offset them against rental income. With mortgage rates increasing, landlords are opting to sell rather than renew at higher rates, especially when rental yields are insufficient to cover expenses.
  3. Budget Announcement: Chancellor Hunt announced a drop in the higher rate of CGT from 28% to 24%, but Eccles suggests this reduction is insufficient to incentivize landlords to sell given the current market conditions.
  4. Rental Market Dynamics: Despite subdued sales activity, the rental market in London’s core areas is expanding. Low transaction volumes and underwhelming sales values are prompting more sellers to explore renting out their properties as landlords.
  5. Challenges for Landlords: Landlords are facing a mixed rental market, with some properties letting quickly while others struggle to attract tenants. Rents remain stable, but landlords must be responsive to price changes to minimize vacancy periods.
  6. Trends in Landlord Behavior: There is a trend of landlords consolidating their property portfolios and selling properties that are surplus to their requirements. Many landlords are returning to the rental market after failing to achieve anticipated capital growth in sales.

Overall, the insights provided by Eccles shed light on the complex dynamics influencing landlord decision-making in the face of changing market conditions and government policies.

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