Landlords are confronting sharply higher Capital Gains Tax bills due to the government’s failure to adjust for inflation when calculating gains. The National Residential Landlords Association (NRLA) describes this as ‘absurd’, highlighting how inflation has artificially inflated taxable profits on property sales. With UK inflation running above 5% in recent years, ignoring this factor means landlords pay tax on nominal gains that do not reflect real increases in value.
This issue distorts investment returns and may discourage property owners from selling or upgrading portfolios. Our data shows that average nominal house price growth over the past five years has been around 25%, but real growth after inflation is closer to 15%. Without indexation relief, landlords face tax charges on the full 25%, effectively taxing phantom profits.
For investors, this creates a hidden cost that reduces net yields and complicates exit strategies. It also risks pushing some landlords out of the market or prompting them to increase rents to cover higher tax burdens. Reforming Capital Gains Tax to incorporate inflation adjustments would align tax liabilities with actual economic gains, making property investment fairer and more sustainable.
The government’s current approach contrasts with other asset classes where inflation is recognised in gain calculations. For UK residential property, this oversight adds unnecessary friction at a time when the sector needs stability amid rising interest rates and regulatory changes. Landlords and investors should monitor this issue closely, as tax reform could reshape the market dynamics in the coming years.
Source: Property Industry Eye
