Helping private tenants buy their homes is a good idea – it needs to be a right
Peter Saunders, 8 October 2018
I’m delighted to read in the newspapers that the Prime Minister’s former adviser, Will Tanner, who now runs the new Conservative think tank Onward, is proposing support for private sector tenants to buy the home they rent. Apparently the Treasury is interested in the idea and it could even be launched in the Budget later this month.
Keen readers of Civitas publications may recall that in June 2016 we published Restoring A Nation of Home Owners which put forward a private sector Right to Buy scheme. The Tanner proposals are similar in some respects, for both plans suggest that, after three years, tenants should be helped to buy the property they are renting, and that landlords be compensated by Capital Gains Tax concessions.
But there are some crucial differences. Tanner’s scheme is not a ‘Right to Buy’, like mine, but a ‘Chance to Buy’. This is because landlords will still be able to choose whether or not to sell to their tenants, which means tenants have no right to purchase their homes.
Nor does the Tanner scheme include any discount on the market price of the property. In my 2016 proposals, I suggested that tenants should be allowed to buy at a discount (which would depend on how long they have occupied the property), in the same way as council tenants can. The same discounts offered to council tenants under their RTB scheme would also apply in the private sector. The Tanner proposals include no such provision.
Instead, Tanner suggests that landlords who sell up should be exempted from half of their Capital Gains Tax liability, and that the other half should go to their tenants to be used as a deposit on the purchase of the house. Rather than offering tenants a right to buy, therefore, what the scheme does is incentivise landlords to sell by offering them this CGT carrot.
In my 2016 proposals, I suggested that landlords who sell should be allowed to offset the discount for their tenants against their CGT liabilities. For example, a landlord with a house worth £400,000 sells to a tenant at the maximum (capped) discount of £77,900 (a sale price of £322,100). Assuming the landlord bought the house 12 years ago at just £200,000, s/he would still make a taxable capital gain of £122,100, but the discount would be taken off this, leaving a taxable gain of £44,200, which would attract CGT of £9,268 (as compared with £52,892 if the house were sold at full market price).
This contrasts with Tanner’s proposals, under which the house would still be sold for £400,000, the landlord would pay half of the £52,892 CGT currently owing, and the tenant would be given the other half as a deposit.
Tanner’s new proposal is most welcome, and it is heartening that the government is apparently taking it seriously. Anything that seeks to unlock some of the property in the private rented sector and shift it into owner occupation should be welcomed. But it is unlikely to make a huge impact on the decline of home ownership in this country. To have a transformative impact on owner occupation rates (as Thatcher’s RTB for council tenants did in the 1980s), we would need to be a lot more radical.