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Landlords fearing a smash-and-grab on profits in this month’s Budget are wondering if they can realistically sell a buy-to-let property or holiday let in less than 30 days to avoid new rules that Chancellor Rachel Reeves may impose immediately.
The critical date for the Budget is October 30, as any new tax rates could come into force soon after the end of her lunchtime speech in Parliament.
Landlords who want to sell have three fundamental options:
The chances of completing a sale by the traditional route of a buyer paying the asking price are slim in 30 days.
Estate agent data shows the average sale takes 51 days to agree and 114 days after that to complete - 165 days or around 5.5 months.
Auctions are a quicker bet. A deposit is paid on the sale day, the exchange of contracts 28 days later and completion up to a month after the exchange. That adds up to around 56 days or just short of two months.
Quick sale property companies offer to buy a property for cash and to complete within seven days - but don’t believe the hype as exchange and completion can take much longer, even as long as a standard sale.
Sellers need to crunch their numbers to decide if a quick sale to a company or by auction is worth it.
All house sales come with fees, and they are quicker than a standard sale because the buyers will heavily discount the price. At best, expect to receive no more than 80 per cent of the property’s market value from the deal.
According to the Land Registry, an average home was valued at £290,000 in September.
Discounted to 80 per cent of the market price, leaving £232,000 less any fees and capital gains tax (CGT).
London letting agent Benham & Reeves has analysed buy-to-let sales data and suggests landlords selling a rented home make an average profit of £90,052 a property after deducting buying and selling costs to give an amount chargeable to CGT.
CGT on that figure is £17,289 for landlords paying at a rate of 18 per cent or £23,053 for those on the higher rate of 24 per cent.
If the Chancellor aligns CGT rates with tax, the basic rate goes up to 20 per cent and the higher rates to 40 per cent or 45 per cent for additional rate taxpayers.
At the basic rate, landlords would pay £345 more, while higher rate taxpayers pay an extra £9,221.
If Reeve changes CGT rates to income tax rates, the extra tax is negligible for a basic rate taxpayer and massive for a higher rate taxpayer.
However, for a higher-rate landlord, the 20 per cent market value loss is much more than the extra tax.