Why a CGT-Income Tax Equalisation Push Should Worry Landlords Now

A senior figure closely associated with Greater Manchester Mayor Andy Burnham has added his voice to a growing chorus of think tanks demanding that Capital Gains Tax be equalised with Income Tax — a move that, if adopted, would represent the most significant tax shock to the UK property investment market in a generation. The proposal is not new in isolation; groups including the Resolution Foundation and IPPR have floated similar reforms in recent years. But the fact that it now carries the imprimatur of someone in Burnham's inner circle signals that equalisation is shifting from fringe policy paper to mainstream Labour-adjacent thinking, at a moment when the Chancellor is under sustained pressure to close a fiscal gap estimated at anywhere between £20 billion and £40 billion.

For property investors, the mechanics matter enormously. Under current rules, gains on residential property disposals are taxed at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers, following the reduction from 28% announced in the March 2024 Budget. Income Tax, by contrast, is levied at 20%, 40% and 45%. Full equalisation would mean a higher-rate landlord selling a buy-to-let property could see their tax liability on the gain nearly double, from 24% to 40% or even 45% once additional-rate thresholds are breached. On a £150,000 gain — not unusual for a London or Surrey investor who has held a property for a decade or more — that is the difference between a tax bill of £36,000 and one approaching £67,500.

The regional implications are far from uniform. In high-growth markets such as Manchester, Leeds and Birmingham, where average property values have appreciated by 35-45% over the past decade according to Land Registry figures, landlords sitting on substantial unrealised gains would face a strong incentive to sell before any legislation takes effect — precisely the kind of anticipatory disposal rush that hit the market ahead of the 2016 stamp duty surcharge and the tapering of mortgage interest relief. Conversely, in markets where growth has been more modest, such as parts of Newcastle and Liverpool, the immediate behavioural impact may be smaller, but the long-term effect on investor appetite would still be corrosive. Surrey and the wider commuter belt, where high-value family homes sold as second properties or inherited estates generate some of the largest single gains in the country, would be disproportionately exposed.

The timing is what makes this proposal especially potent. The private rented sector has already absorbed the Renters' Rights Bill, the phased withdrawal of Section 21, higher stamp duty surcharges on additional properties, and the erosion of mortgage interest relief since 2020. Layering a CGT equalisation on top of that would risk accelerating the exodus of smaller, non-portfolio landlords — precisely the cohort that surveys from the National Residential Landlords Association suggest has already been shrinking its holdings at a rate of roughly 3-4% annually since 2022. Fewer landlords typically means tighter rental supply, and tighter supply in cities such as Manchester and Bristol, where rental growth has already outpaced wage growth for three consecutive years, would push rents higher still, ultimately squeezing the tenants that reform advocates claim to be protecting.

Developers and commercial investors would not escape unscathed either. While much of the debate focuses on residential buy-to-let, equalisation proposals typically extend to gains on commercial property and land disposals, raising the effective tax rate on development profits realised through personal ownership structures. This would push more activity towards corporate wrappers, where Corporation Tax at 25% already applies to gains, accelerating a trend already visible among sophisticated investors who have been incorporating portfolios since the 2017 mortgage interest relief changes began to bite. Smaller developers without access to corporate structuring advice would bear the heaviest relative burden, potentially slowing the pipeline of smaller-scale regeneration schemes in secondary cities that rely on individual entrepreneurial developers rather than institutional capital.

Over the next six to twelve months, expect three concrete effects regardless of whether the policy is ultimately adopted. First, transaction volumes among higher-rate taxpayer landlords will likely rise in the short term as sellers seek to bank gains at the current 24% rate ahead of any Budget announcement, a pattern estate agents in London, Manchester and Leeds have already begun reporting anecdotally. Second, advisers will see a surge in demand for incorporation and estate-planning consultations, as landlords attempt to shield future gains through limited company structures or trusts. Third, first-time buyers may find a temporary uptick in stock as landlords exit, offering brief relief in markets like Birmingham and Newcastle where affordability has been most stretched — though this would be offset within a year or two by reduced rental supply pushing more renters back into the purchase market prematurely, straining mortgage affordability further. The debate over CGT equalisation is ultimately a debate about who absorbs the fiscal cost of rebalancing the UK's tax base, and property investors, landlords and developers should treat this proposal not as speculative noise but as a genuine and increasingly plausible policy trajectory that demands active portfolio and structuring review now, not after the next Budget.