A combination of financial challenges, eviction bans and a perceived lack of support meant the rental market was hit hard by the COVID-19 pandemic. Now, landlords and tenants are feeling the effects of rising costs.

Landlords are also concerned about rental reform, high taxation and higher energy efficiency standards, according to the UK Landlord Report by Simply Business.
They found that almost half of landlords had sold a property in the last year or are planning to do so, which “comes as little surprise when you consider the pace of market change, as well as tax disincentives such as Section 24 and the stamp duty surcharge”.

That’s not even taking into account the aftermath of the mini budget announced by former Chancellor Kwasi Kwarteng on 23 September 2022, which piled even more risks onto landlords after the Bank of England signalled it could raise interest rates to 6%. As a result, some buy-to-let landlords may see their profitability decline when they go to refinance their loans.

Data issued by Hamptons suggests many will face losses if interest rates shoot up. It said the average higher-rate tax-paying landlord could expect their annual net profit to plummet from £3,198 to £884 – a 72% decline.

If the most recent 0.5 percentage point rate to 2.25% is passed on to mortgage costs, that could slash average profits to just £212 a year. And if the base rate were only to nudge up to 2.5%, that same landlord could expect to make a loss.

That leaves some investment property owners, in effect, faced with two options: raise rents in the hope a tenant will pay it to keep the landlord in profit territory or sell up. Meanwhile, some analysts predict house prices could fall by up to 20%, which puts more pressure on sellers.

But selling a residential property comes with its fair share of tax obligations, namely Capital Gains Tax (CGT), which could end up costing you a fair amount of money. There are, however, ways to mitigate your tax bill.

Read more…

>> Download our ‘Capital Gains Tax on buy-to-let property’ Guide


You should only sell a buy-to-let residential property after talking through your specific situation with a financial adviser. The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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