The National Residential Landlords Association (NRLA) wants the Chancellor to announce Capital Gains Tax reform in his first Budget Statement, arguing that the current system discourages investment in rental housing.
Demand for rental homes is already outstripping supply. Rightmove data shows each available property now attracts an average of 10 enquiries, double the pre-pandemic figure, which makes it harder for younger people in particular to reach work and education.
The NRLA says the tax system compounds the problem because it cannot separate genuine gains from price rises driven by inflation. Its research found that just one-fifth of the increase in house prices between 2015 and 2024 represented real-terms gains, with inflation accounting for the rest. Even so, apart from certain capital costs, all price appreciation is treated as profit and taxed when a property is sold.
To support Capital Gains Tax reform, the association proposes two changes:
- Tax gains, not inflation: the tax would apply to genuine gains rather than gross increases in property values, with the purchase price and any qualifying capital expenditure adjusted for inflation before the real-terms gain on disposal is calculated.
- Recognise long-term use: relief would reflect how long a property is held and used to provide accommodation. A property bought and sold speculatively over a short period would receive no relief, which the NRLA says would favour long-term investment over short-term flipping.
Safeguards would stop the relief from creating or increasing an allowable capital loss, or exceeding the inflation actually experienced. Genuine increases in property values would remain subject to the tax. The aim of the Capital Gains Tax reform, according to the NRLA, is to prevent inflation being taxed and to preserve the purchasing power of money released when a property is sold.
“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,” said Ben Beadle, chief executive of the NRLA. “It is absurd that investors face Capital Gains Tax on increases in property prices that are simply the result of inflation. That’s not a real gain, and it shouldn’t be treated as one.
“Taxing inflation devalues the worth of an investment, and any potential return,” he added. “If nothing changes, potential investors will be better off leaving cash in the bank, where they face none of the risks or difficulties inherent in providing homes.
“The Chancellor has an opportunity to put this right,” he noted. “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.”
“If we want renters to have more choice and affordable places to live, we need a tax system that encourages investment rather than undermining it.”
